VA introduces process to weed out appraisal bias

As the federal government pushes forward with its initiative to clamp down on appraisal bias, housing agencies are rolling out additional tools to do so. The Department of Veterans Affairs is the latest to announce further resources to help identify discriminatory bias during the appraisal process.

The VA is buckling down on valuation bias by making changes to its oversight policies and urging the program's certified appraisers to take training on fair lending.

Its "enhanced" oversight procedures now include a multilayered review process. If discriminatory bias is confirmed, an appraiser "will be subject to removal," from VA's home loan program, per a circular published in mid-January.

"This is a new automation that we're building into our VA appraisal technology where an appraisal is scanned and if there is subjectivity and bias then the VA would have the ability to further review," said John Bell, deputy director of loan guaranty service at the VA and author of the circular, in a written statement. "We have always had oversight of appraisals in our review process, this is just an additional resource to ensure every veteran is treated fairly when purchasing a home."

The department already has tools in place that can be used to challenge an appraisal such as a reconsideration of value (ROV) process and VA's tidewater policy, which allows "interested parties to provide additional sales data that may support the contract price." But the latest procedures will allow the VA to specifically tackle discriminatory bias.

In a newly introduced three-pronged process, an initial review takes place on an appeal and if the department indicates that there is potential discriminatory bias, the file gets escalated for a second review. Following an escalated review, if discriminatory bias is confirmed "the appraiser will be subject to removal as a VA-approved appraiser." After that, the department will "refer the case to the proper enforcement agencies for further investigation," the VA's circular said.

The changes "will better enable the VA to identify discriminatory bias in home loan appraisals and act against participants who illegally discriminate based on race, color, national origin, religion, sex (including gender identity and sexual orientation), age, familial status, or disability," the circular said.

The VA's memo also reminded appraisers of Fannie Mae's form 1004, the Uniform Residential Appraisal Report, where they certify to not having "present or prospective personal interest or bias with respect to the participants in the transaction." And it urged appraisers to take "training on appraisal bias, fair housing, and fair lending."

If discriminatory bias is uncovered and an appraiser has not taken such training, the "VA and other enforcement agencies may consider a participant's unwillingness to take the training as a relevant factor in any inquiry," the department's memo said.

During a hearing held by the Federal Financial Institutions Examination Council's Appraisal Subcommittee (ASC) on Tuesday, Mike Fratatoni, chief economist at the Mortgage Bankers Association, noted that the trade group applauds the VA's move to modernize its appraisal process, but noted "that some additional work" needs to be done.

The trade group has urged the VA to align its process more closely "with those of the FHA and the housing government-sponsored enterprises — Fannie Mae and Freddie Mac — to the greatest extent possible."

In early January, the Department of Housing and Urban Development introduced proposed changes to its appraisal process, which includes an update to the FHA's reconsideration of value (ROV) process by including an option for borrowers to request another appraisal if they believe the original's results are skewed by racial bias.

It is also looking to include specific guidance to process and document a borrower-initiated review of appraisal results. Feedback from the industry will be accepted until Feb. 2.