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| advancing equity in the home valuation process, hud, mary cummins, real estate, appraiser, real estate appraiser, los angeles, california, fha |
Earlier today I attended the Zoom seminar on "Advancing Equity in the Home Valuation Process" by HUD. Speakers were Secretary of HUD Marcia Fudge, Melody Taylor, HUD Lisa Rice, Alanna McCargo, Zillow Dr. Svenja Gudell, Noerena Limon, Michael Neal and Andre Perry.
Based on what I heard today none of these people understand appraisals or the appraisal process. At the end of the meeting they actually said "we need a regulatory federal government agency to oversee real estate appraisers." The federal government has overseen real estate appraisers since 1989 per the FIRREA Act over 30 years! Guess who is one of the departments that oversees appraisers? HUD! HUD also handles complaints against appraisers. Shocking these people don't know this basic fact. FDIC, FHFA, FRB, OCC, NCUA, CFPB are other federal government agencies that oversee appraisers.
After the speakers spent the meeting stating over and over that all real estate appraisers are biased and have robbed POC of $150 billion (citing flawed and meaningless data by Andre Perry) the speakers said something pretty disturbing. They said "the problem is old white men" meaning old white male appraisers. They stated this opinion without any evidence whatsoever. That is the actual definition of bias. It's also racist besides hypocritical.
Below are my notes from the meeting. Below that is the information from the meeting and link. I'll post the Zoom video when it's ready. I came in when Lisa Rice started at 11:20 a.m. PST. My comments are in ( )s.
Lisa Rice LR: Appraisal bias has been around for decades. It's robbing $150 billion in equity from black people and POC. That's why we started the task force. (LR is quoting Andre Perry's misleading paper. No money was stolen from POC by real estate appraisers or anyone.) We want to close the racial home ownership gap. The gap is now larger than before the FHA passed. Part of the reason is credit. Blacks have 13% of the wealth of whites. Latinos have 19%. Blacks earn less than whites. Blacks don't have as much home equity. (Obviously if you earn less money, you have less money to buy and own a home) White schools get more money. (Schools get most of their funding from property taxes which is based on home values in their county. White people generally make more money so they buy more expensive homes and pay more property tax which goes to schools).
Latino and Black borrowers pay more in credit fees than whites. (Poor people of all colors pay more in fees). There is now climate injustice and de-greening for POC. It's 5-20 degrees hotter in the same city for POC than white. (This is caused by lack of trees, open space, gardens which is caused by higher housing density. I live in such an area and it's all Latinos. New York luxury high rise condos have the same problem.) People think something must be wrong with black people to suffer these things. The cause is an unfair system.
We (Americans) took (stole) land from the Indians and gave it to certain (white) people only. The distribution was not fair to black people. It's not fair because of the laws and policies which shaped our system. (It was even more unfair to the Indians who had their land stolen)
(LR cited Andre Perry's false and misleading $156B of equity stolen from black people.) The task force is the right path to equitable outcomes in appraisal context for POC.
Moderator Alanna McCargo AM: (McCargo is an advisor to HUD Secretary Fudge). How we will attack appraiser bias issue and remove it. Appraiser bias is multi-pronged and systemic. Biden said "we will use federal levers to root out discrimination in appraisals and the home buying process." Appraisals represent value, pricing, equity, affordability. Welcome, panel.
Noerena Limon NL: I work for public policy for the National Association of Hispanic Real Estate Professionals.
Svenja Gudel SG: I work for Zillow. We are involved in data driven insights and trends.
Michael Neal MN: AVMs Automated Valuation Methods discriminate against black people.
Andre Perry AP: I hear appraisers say "there's no discrimination or racism in appraising. We passed laws." All value is a social construct. "Affordable" is one of their code words. We must correct the markets. Appraisers under priced black owned homes by 23% or $48K per home in lost equity. (False. His paper has major statistical errors and is meaningless). That money could have been used by homeowners to buy a home in a better neighborhood (He actually said that! So black people don't want to own a home in their own neighborhood? They want to go to a "better" neighborhood? Yet he says their neighborhood is as good as a similar white neighborhood).
SG: I agree with AP (She said this repeatedly). At Zillow we want to empower consumers to find a new home. It's important to provide more data. We use AVMs to level the playing fields and address racism. Our policy can work with industry to address issues.
MN: Home ownership. We must help blacks get a home and benefit from equity. Undervaluation. If an appraisal is low a home sale can fall through. The homeowner has lower equity. Home owners use equity to invest in themselves, home improvements. We're in a recession. POC are more vulnerable in economic downturns.
NL: Home ownership is the number one way to build wealth. It's a way to pass on wealth to their family, improve their health, business. The wealth of homeowners is 80x that of black renters. Latino homeowners have 40x wealth of Latino renters. Urban growth will come from non white communities. Discrimination and bias have no room in the housing market.
AM: It's a complex situation with lot of stakeholders.
AP: Appraisers feel attacked. They are not the only actor in variance of price. There are agents, lenders though appraisers are included in that. Appraisers say "we've done nothing wrong. I'm not breaking the law." That doesn't mean there shouldn't be standards so you don't lower values. Real estate appraisals used to keep blacks out of certain communities (Wrong. Real estate agents, lenders kept blacks and others out of certain communities. You wouldn't get an appraisal if you didn't already own a home or were allowed to apply for a loan in that area). Appraisers are self regulating which isn't right. (Wrong. The federal government oversees appraisers. People can complain to HUD and others.) Appraisers have the freedom to discriminate. In the price comparison approach they compare homes in area to another in the same area. If you only compare homes in a discriminated area to the same area, discrimination continues. There are multiple ways to arrive at value. We look across metropolitan areas instead of just the same neighborhood to get our values (for his paper which is a huge statistical error making his results misleading).
Real estate appraisers are the gate keepers. Only a few people make the determination. They are 85% white, 75% male (Wrong. Those numbers came from a poll in the Appraisal Institute which doesn't represent appraisers as a whole). They have too much opportunity to express bias which permeates the practice. Only a few actors determine value.
SG: I agree with AP. Former redlined areas show lower home values today than non redlined areas (which doesn't have to do with race but property age, type, median income of owners/tenants...). It stays with us. Human bias is real. (But Zillow uses AVMs which don't use humans so explain that).
More data is better but it must be clean and correct data. Models are only as good as data you feed them (Garbage in, garbage out). All of the major AVMs don't use demographic (racial) data and shouldn't. They should only look at the home, amenities. We use a broad base of comps from similar neighborhoods (No. They use comps from the same immediate neighborhood).
MN: We looked at AVMs. We didn't find evidence of bias with AVMs. We didn't see AVMs undervalue in black neighborhoods. (Tell that to Andre Perry who stated the opposite). Appraisal waivers encourage AVMs. If it's humans introducing bias into the appraisal why not remove humans from the process. There is more AVM error in black neighborhoods. Overvaluing is also problem besides over correcting to the low side. If you over value, you set up an additional layer of instability for more vulnerable. We need to boost the underlying value of the community.
AM: What about the great recession.
NL: The recession wiped out wealth for Latinos. POC more likely to have FHA loan, lower down payment. They are losing bidding war to bigger down payment buyers. Appraisals take too long and charge rush fees.
AP: Over valuing is rooted in exploitation. People wanted to make money (making loans to anyone.). Black and brown bore the brunt of failure. Dodd Frank Act to correct that. In the white community they agree on a price point with the appraiser. In black community, no. (That's false. We don't agree on a price point ahead of time. It's illegal.) The deals fall through more in black areas. Blacks are burdened by regulations. They (the federal government) should focus on helping only black, brown and not the aggregate. If you can correct for black, brown, you can correct for entire country. If you over correct, you cause more damage.
SG: The current frenzy. It's hard for anyone to value a home today. The "value" is whatever anyone is willing to pay for it. Human or AVM appraisal. It's hard to evaluate homes now. Incredibly difficult.
NL: This is a supply, demand issue. We need more homes.
MN: Blacks need more equity. How they lend that money is important for impact. Black banks. We need to make sure when the increase is home value doesn't come with gentrification (Gentrification is just the revitalization of an area). Property tax assessments. Blacks pay higher property taxes than whites. (Property tax based on county and state laws where the person lives, when they bought it, how much they paid and how much it's reassessed. These things affect everyone not just black people).
AP: What recourse does a homeowner have from a bad appraiser? We need to make data transparent for all. GSEs have lots of data to develop AVMs. (online avms). It's holding black people back. White and brown who own homes in black areas. The value effect of blackness. It spreads across different races. (Exactly. That's because it doesn't have anything to do with color but income, assets, savings, credit, home sales. AP also talks about finding a way to give the $48,000 in "stolen equity" to each black person. What about the others also suffering from the "value of blackness?")
SG: We care about data. Zillow was the first to make the data available and transparent. In 2002 you had to go to a real estate agent to find homes to buy. Consumers had no power. We give data for buyers and sellers. We give data to level the playing field. Data is powerful to shine a light on issues and provide better outcomes."
MN: We looked at AVMs. The magnitude of error is larger in black areas. The algorithm clearly "knows" the race of neighborhood. (Just because prices are lower doesn't mean it's a black neighborhood. Prices are low where I live and it's 90% Latino). Human appraisers can see the color of the people but not the computer model yet it did. (This proves it's not about color but income, assets, home values)
SG: With data comes responsibility. The confidence range around the point estimate. It's harder to be more specific on tail ends (of the curve). We need to know if they've been renovated... (She's referring to more error in certain areas with lower priced homes responding to MN).
AM: Maybe we should use the market value range concept for appraisers with a margin of error instead of point in time. We need to know the consequences of setting the value differently, how it would work for lenders. (They would say no. A USPAP compliant appraisal is needed for government to guarantee a loan. It's also needed so lenders can sell the loan and investors can buy, trade them.)
AP: I would like to ease the tension of appraisers out there. Data is not taking your job. Appraisers' inability to come up with accurate assessments is more of the problem. I used to have a problem (cabbies discriminated against him because he's black) getting a cab in certain areas in the Bronx. Technology, innovation evolved because of that problem. (You still can't get an Uber in certain areas of the Bronx no matter your color). There have been no research reports but reports anecdotal in nature in media coming out about appraisers discriminating against black people. (So far those specific reports have been proven wrong. ALL people having issues with appraisals in the last year because of the huge run up in sale prices, values. It's an every color issue.). There is a problem. I'm more concerned with low appraisals. If the appraised value comes in below the AVM it should trigger a second appraisal (I'm sure the buyer would love the extra cost. Then they have to deal with another appraiser.).
SG: AVMs have limitations. Sometimes you need someone to walk through a property so there's no second guessing.
NL: We need diversity in the appraisal industry to better understand the communities they serve.
AM: The problem is old white men appraisers. (Everyone else, YES). It's tough to find an apprentice (She meant mentor) to train new appraisers. You need to look like the community you serve. How many real estate appraisers have been convicted of the crime of discrimination? (Discrimination is not a crime as far as I know. If it were, 80% of the nation would be in prison right now).
AP: It's the lender. The lender will say it's the appraisal. There is no accountability. We need clean lines of accountability. HUD is supposed to help detect discrimination. 90% of HUD complaints refused. It's not a criminal activity...yet! There are wild appraisal "errors" that negatively impact some groups more than others.
MN: The lack of home supply. We should fix vacant homes to make them livable. Nonprofits should build homes. Homeowners of color live in inadequate housing. (Poor people of all colors live in inadequate housing). We need to renovate their homes for them.
NL: Appraisal waivers are a higher risk event. How do we speed up the process?
SG: New homes are priced at a higher level. It's expensive to build new homes. It's difficult to build affordable housing. We need to fund the gap to repair housing to increase supply by tax credits. (Gov already offers that).
AM: Housing is infrastructure. We need to build it. (Public housing has always been a failure because of gov red tape, administrative costs...). Would a national standard for appraisers work? (We already have national standards!)
AP: The Appraisal Institute makes standards. Individuals should review their standards and express their voice. (The Appraisal Institute is a private organization and not the government. They don't make any standards. The standards are made by the federal and state governments. In 1989 FIRREA established the Appraisal Foundation and the Appraisal Subcommittee (ASC). The Foundation’s Appraiser Qualifications Board (AQB) sets the minimum Real Property Appraiser Qualification Criteria and the Appraisal Standards Board (ASB) develops the generally accepted standards of practice for the appraisal profession (the Uniform Standards of Professional Appraisal Practice). These are reviewed every two years. Everyone can comment! I posted an image of the federal control of appraisers below).
SG: We should be more transparent and have a national database of home sales.
MN: Government should step in to fix the issues. The federal government probably needs to step in and oversee appraisers. (Everyone replied, "YES, the federal government should oversee appraisers!") (They already do! See above. These people are clearly not experts.)
AM: (12:47 pm)There are 550 people here.
END
Here is my solution to the financial problem. Help everyone get a good paying job so they can save money to buy or rent a home if they like. Don't go blaming others for a problem that doesn't really exist and is not their fault. Appraising is a math formula whether you're an AVM or a live person. One speaker even said he saw no difference between the live person and the AVM robot. Even Zillow said it's very difficult to appraise in this skyrocketing market. EVERYONE thinks the appraisal came in low if it's lower than the contract. Racism does exist and it harms people and communities. Trying to find racism in a math formula and appraising makes no sense. The government's energy would be better spent fighting major issues of real racism in the every day world.
https://www.huduser.gov/portal/event/quarterlyupdate-July2021.html
"Homeownership is integral to building household and intergenerational wealth. However, bias in the home valuation process – including human bias, algorithmic bias, and lender redlining – hinders wealth creation and contributes to racial wealth disparities in the United States.
On July 29, 2021, the U.S. Department of Housing and Urban Development (HUD) will host an event to discuss how bias in the home valuation process and the lack of diversity in the appraisal industry overall contributes to racial wealth disparities. HUD’s Office of Policy Development and Research will host this event which will be opened by HUD Secretary Marcia L. Fudge who will discuss President Biden’s recent charge to HUD to lead a new Interagency Task Force on Property Assessment Valuation Equity, or PAVE. An expert panel will reflect on home appraisal bias and the related but distinct systematic devaluation of homes in minority neighborhoods, delving into topics including the potential for automated valuation models to help identify appraisal bias, Fair Housing implications, and the interagency governmental intersections of this issue that PAVE will explore. Please join our diverse group of experts from research, industry, and government for this PD&R Quarterly Update.
Opening Remarks
- Secretary Marcia L. Fudge, U.S. Department of Housing and Urban Development
PAVE Interagency Task Force Overview
- Melody Taylor, PAVE Executive Director; Regional Director, HUD’s Office of Fair Housing and Equal Opportunity
Keynote Speaker
- Lisa Rice, President and CEO, National Fair Housing Alliance
Discussion: How Racial Bias in the Home Valuation Process Contributes to Racial Wealth Disparities in the United States
- Alanna McCargo, Senior Advisor, Housing Finance, Office of the HUD Secretary – Moderator
- Svenja Gudell, Chief Economist, Zillow Group
- Noerena Limón, Senior Vice President, Public Policy and Industry Relations, National Association of Hispanic Real Estate Professionals
- Michael Neal, Senior Research Associate, Urban Institute
- Andre M. Perry, Senior Fellow, Brookings Metropolitan Policy Program "
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