ASC hearing addresses appraisal bias, highlights deficiencies with The Appraisal Foundation
Homeownership can be a powerful tool for building intergenerational wealth, and a well-functioning mortgage market depends on accurate appraisals. Many minority homebuyers and owners, however, continue to report facing illegal discrimination during the home appraisal process because of their race, national origin, and community demographics.
A little-known non-profit corporation, The Appraisal Foundation, sets qualifications for becoming an appraiser and standards for conducting appraisals. Recent developments, including shifting explanations and deficient policies around conflicts of interest, have raised troubling questions about whether The Appraisal Foundation can realistically address challenges including appraisal bias. CFPB Director Rohit Chopra shared those concerns with his fellow financial regulators in a public comment letter.
Hearings on addressing appraisal bias
The Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council provides federal oversight of state appraisal regulatory programs, and is chaired by CFPB Deputy Director Zixta Martinez. The ASC has been holding a series of public hearings focused on appraisal bias, and its fourth hearing on February 13 (watch here ) examined how state and federal regulators can address appraisal bias and increase diversity in the profession.
The ASC assembled a panel of representatives from each of its seven federal financial regulatory member agencies, including CFPB Director Rohit Chopra as representative for the CFPB. During the hearing, this panel asked questions of five witnesses:
- David Bunton, President, The Appraisal Foundation
- Ed Neelly IV, Executive Director, Mississippi Appraisal Board
- Maureen Sweeney, President, Maureen Sweeney, Real Estate Appraiser, Ltd.
- Melissa Tran, Director, Texas Appraiser Licensing and Certification Board
- Jillian White, Chief Executive Officer, Appraisal Insights
Governance and transparency
Over the course of the hearings, the ASC has gathered information about the governance framework and integrity of The Appraisal Foundation. The ASC is required to monitor and review The Appraisal Foundation’s practices, procedures, activities, and organizational structure.
Witnesses at the hearing testified about the confusing governance structure that makes it hard for appraisers to meet the needs of the housing market and address appraisal bias. The CFPB, together with senior staff from the other six ASC Member Agencies and the Department of Justice, has previously raised concerns about The Appraisal Foundation, including its reluctance to set clear guidance for appraisers around federal laws that prohibit discrimination and biased value judgments.
Following the February 13th hearing, Director Chopra submitted a comment regarding some of the troubling issues highlighted in the hearings. In his comment, Director Chopra expressed his concern that The Appraisal Foundation, while acting essentially as a lawmaking body, is neither accountable to the public nor subject to competitive market forces. The key issues raised in the comment letter are:
- Severe deficiencies in The Appraisal Foundation’s conflict of interest policies raise questions about its regulatory decisions: The Appraisal Foundation’s conflict of interest policies and Code of Conduct are much narrower and less specific than the equivalent policies governing Executive Branch employees, and do not prohibit many types of conduct covered by the federal policies. The comment letter describes specific findings from the hearings, such as a board member who works for a vendor regulated by the body.
- The Appraisal Foundation’s insular governance structure favors private interests: Until the end of 2023, The Appraisal Foundation’s governance structure featured a pay-to-play mechanism whereby paying “Sponsors” selected around half the members of the Board of Trustees. Recent changes to the bylaws have made minor modifications to the process, but in the most recent hearing the Foundation president acknowledged that Sponsors (now renamed as “Partners”) can nominate themselves as “public interest” trustees, and that the current trustees can elect a full slate of new trustees from companies contributing financially to the regulatory body that ostensibly serves as a check on their conduct.
- The Appraisal Foundation’s processes, including the selection of its President, lack transparency: The Appraisal Foundation has stopped allowing Appraisal Subcommittee staff to attend closed deliberations of applicants to Foundation boards, and has given shifting explanations for this shift in testimony. While Appraisal Foundation witnesses initially claimed “surprise” that ASC staff were no longer attending these sessions, Foundation President David Bunton conceded in the recent hearing that the exclusion was intentional. Mr. Bunton is retiring and the Foundation is in the process of searching for his replacement. At the most recent hearing he testified that he was “not involved in” and had “stayed out of” the process of choosing his replacement. He later admitted that he had in fact made suggestions about who his successor should be, and opined that the Foundation would not involve the ASC in the selection process.