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Financial Services Law Insights and Observations


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  • FTC prohibits Louisiana appraisal board from fixing prices

    Federal Issues

    On April 5, the FTC approved a final order settling charges arising from a 2017 FTC administrative complaint alleging that a Louisiana appraisal board unreasonably restrained price competition for real estate appraisal services provided to appraisal management companies in the state. Under the Dodd-Frank Act, appraisal management companies are required to pay “a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” The FTC alleged that the appraisal board exceeded Dodd-Frank’s mandate by requiring appraisal fees “to equal or exceed the median fees” identified in survey reports commissioned and published by the appraisal board, and then investigated and sanctioned companies that paid fees below the specified levels. Under the terms of the order, the appraisal board is prohibited from adopting a fee schedule for appraisal services or taking any other actions that may raise, fix, maintain, or stabilize prices, compensation levels, rates, or payment terms for real estate appraisal services. Additionally, the appraisal board must rescind Rule 31101 in the Louisiana Administrative Code, which effectively sets minimum fees for real estate appraisals.

    Federal Issues FTC Enforcement Appraisal Consumer Finance State Issues Louisiana Dodd-Frank Real Estate

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  • CFPB releases semi-annual report

    Federal Issues

    On April 6, the CFPB issued its semi-annual report to Congress covering the Bureau’s work for the period beginning April 1, 2021 and ending September 30, 2021. The report, which is required by Dodd-Frank, addresses several issues, including difficulties faced by consumers in obtaining consumer financial products or services throughout the reporting period. The report highlighted that the Bureau, among other things, has: (i) taken steps to increase workforce and contracting diversity; (ii) carefully observed consumer reporting agencies’ and furnishers’ compliance with Fair Credit Reporting Act accuracy obligations relating to rental information, and outlined specific areas of focus and concern; (iii) hosted a roundtable examining racial bias in home appraisals; (vi) expanded housing efforts into a comprehensive, cross-federal campaign aimed at connecting homeowners and renters facing housing insecurity as a result of the Covid-19 pandemic with the resources available to help them stay in their homes; and (v) launched an initiative to reduce fees that consumers are charged by banks and financial companies. In regard to supervision, enforcement and fair lending, the report highlighted its public supervisory and enforcement actions and other significant initiatives during the reporting period. Additionally, the report noted rule-related work, including advisory opinions, advance notice of proposed rulemakings, requests for information and proposed and final rules.

    Federal Issues CFPB Consumer Finance FCRA Dodd-Frank Discrimination Appraisal Covid-19 Supervision Fair Lending Enforcement

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  • PAVE task force delivers plan on appraisal bias

    Federal Issues

    On March 23, HUD delivered the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE) Action Plan to President Biden. Created in June 2021 to address racial bias in home lending and appraisals and establish actions to root out inequity, PAVE Task Force members include HUD Secretary Marcia L. Fudge and White House Domestic Policy Advisor Susan Rice, the U.S. Attorney General, the Secretaries of Agriculture, Labor, and Veterans Affairs, the Comptroller of the Currency, the Chairmen of the Federal Reserve Board, FDIC, NCUA, Directors of the CFPB and FHFA, and the Executive Director of the Appraisal Subcommittee of the FFIEC.

    According to the announcement, the Action Plan to Advance Property Appraisal and Valuation Equity (the Plan) will represent “the most wide-ranging set of reforms ever put forward to advance equity in the home appraisal process.” According to the Task Force’s executive summary, “[o]n average, homes in majority-Black neighborhoods are valued at less than half of those in neighborhoods with few or no Black residents.” The summary also reports that the impact of undervaluation on homebuyers, sellers, and communities can sometimes result in higher down payments for home buyers, often causing sales to fall through, while low valuations in a refinance transaction can reduce the cash-out available and sometimes affect the refinance interest rate and mortgage insurance premiums paid by the homeowner. The Task Force further notes that since the Fair Housing Act was passed more than 50 years ago, “the racial wealth gap is wider than ever: in 2021, the Black homeownership rate reached only 44 percent, while the white homeownership rate reached 74 percent.”

    The Plan will focus primarily on actions to substantially reduce racial bias in home appraisals, as well as steps federal agencies can “take using their existing authorities to enhance oversight and accountability of the appraisal industry and empower homeowners and homebuyers to take action when they receive a valuation that is lower than expected.” Among other things, the Plan states that Task Force members will exercise broad oversight and compliance authority to strengthen “guardrails against unlawful discrimination in all stages of residential valuation.” Agencies will also issue guidance on FHA and ECOA’s application to the appraisal industry and update appraisal-specific policies to “ensure that appraisers or regulated institutions’ use of appraisals are directly included in supervisory [FHA] and ECOA compliance requirements, and are considered in every review of relevant existing and future policies and guidance.” Relevant agencies have also committed to addressing potential bias in the use of technology-based valuation tools through a rulemaking related to automated valuation models (AVMs), including the addition of a nondiscrimination quality control standard in the proposed rule. In consultation with Congress, Task Force members will also pursue legislation to modernize the governance structure of the appraisal industry.

    In the coming months, the Task Force will assess: (i) the “expanded use of alternatives to traditional appraisals as a means of reducing the prevalence and impact of appraisal bias”; (ii) the use of “range-of-value estimates instead of point estimates as a means of reducing the impact of racial or ethnic bias in appraisals”; (iii) the “potential use of alternatives and modifications to the sales comparison approach that may yield more accurate and equitable home valuation”; and (iv) “public sharing of a subset of historical appraisal data to foster development of unbiased valuation methods.”

    CFPB Director Rohit Chopra stated that the Bureau will take an active leadership role in the Appraisal Subcommittee and will work “to implement a dormant authority in federal law to ensure that algorithmic valuations are fair and accurate.”

    Acting Comptroller of the Currency Michael J. Hsu also announced that the OCC plans to enhance its supervisory methods for identifying discrimination in property valuations and will take steps to ensure consumers are aware of their rights regarding appraisals. The agency also intends to “support research that may lead to new ways to address the undervaluation of housing in communities of color caused by decades of discrimination.”

    Additionally, acting FDIC Chairman Martin J. Gruenberg noted that the agency is committed to taking several concrete actions, including collaborating with Task Force members to exercise authorities “to support a more equitable state appraisal certification and licensing system.”

    Federal Issues Bank Regulatory Biden HUD Mortgages Appraisal Fair Lending Fair Housing Act ECOA CFPB OCC Prudential Regulators FDIC

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  • Waters sends letter to HUD and others regarding appraisal bias

    Federal Issues

    On February 22, Chairwoman of the House Financial Services Committee Maxine Waters (D-CA) sent a letter to HUD Secretary Marcia Fudge, the Appraisal Subcommittee, the Appraisal Foundation, and the Appraisal Institute regarding appraisal bias and discrimination. The letter, among other things, urged federal regulators and the Appraisal Institute to investigate appraiser misconduct and the possibility of illegal discrimination and highlighted “longstanding racial inequities plaguing America’s home valuation system, particularly in Black-majority communities and other communities of color,” according to the press release. In the letter, Waters noted that during her time with the House Financial Services Committee, the committee has “paid special attention to the racial inequities that continue to plague America’s home valuation system, including through home appraisals, despite the passage of anti-discrimination laws.” She further pointed to “qualitative research” from the National Fair Housing Alliance to shed light on “the ways in which individual appraisers and the appraisal profession help perpetuate systemic and overt racism, highlighting statements made by appraisers as well as policies and practices that continue to be upheld by an appraisal profession that is 97% White.” The letter also provided excerpts from an appraiser’s email as an example of discriminatory practices, in which Waters asserted, “shines a spotlight on the racist stereotypes and harmful lines of thinking prevalent in an industry which systematically devalues the homes of Black people and other people of color.” Waters noted that she will be drafting legislation “to address systemic appraisal discrimination,” recommended that the recipients of her letter conduct pertinent investigations, and urged them to respond to her letter accordingly. Waters also disclosed that the House Financial Services Committee “will convene hearings, advance legislation, and continue working with stakeholders to end housing discrimination and hold the appraisal industry fully accountable.”

    Federal Issues House Financial Services Committee HUD Appraisal Fair Lending Discrimination

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  • DOJ says Fair Housing Act covers appraisal discrimination


    On February 14, the DOJ filed a statement of interest in a lawsuit alleging defendants violated the Fair Housing Act (FHA or the Act) by discriminating on the basis of race in connection to a residential home appraisal. The plaintiffs, a Black couple, sought to refinance their home mortgage, and received an appraisal from the defendants valued at $995,000. However, a few weeks later a second appraiser valued their home at $1,482,500. The plaintiffs alleged that their race factored into the defendants’ low valuation, which violated federal and state law, including the FHA. The defendants moved to dismiss for failure to state a claim, arguing that the FHA does not apply to residential appraisers, and that the plaintiffs failed to allege facts that make out a prima facie case at this stage of litigation.

    In its statement of interest, the DOJ noted that both the agency and HUD share enforcement authority under the FHA, including addressing appraisal discrimination. The DOJ also highlighted Executive Order 13985, which directed federal agencies “to address ‘[o]ngoing legacies of residential segregation and discrimination’–including ‘a persistent undervaluation of properties owned by families of color,’” (issued in 2021 and covered by InfoBytes here), and stated that President Biden also established an interagency task force to, among other things, “‘root out discrimination in the appraisal and homebuying process.’” To illustrate that the FHA applies to residential appraisals and appraisers, the DOJ pointed to the FHA’s text and to caselaw to demonstrate that the statute applies to residential mortgages. “[B]y its plain terms, the Act directly prohibits discrimination by ‘any person or other entity’ engaged in the “apprais[al] of residential real property,” the DOJ stated, adding that the appraisal exemption under Section 3605(c) clarifies that while appraisers may consider relevant and nondiscriminatory factors, they may not discriminate on the basis of protected classes. The DOJ also disagreed with the defendants’ position that under Section 3603 the FHA is not applicable to the subject property, stating that the section referenced by the defendants was only effective until 1968 and that henceforth, “all dwellings are covered by the FHA unless specifically exempted.” Additionally, the DOJ cited caselaw, which “found that proper defendants for appraisal-related discrimination may include not only appraisers, but their employers and the lenders who relied on their valuations.” With respect to the defendants’ prima facie argument, the DOJ contended, among other things, that the FHA “simply requires that Plaintiffs allege a plausible entitlement to relief as a result of Defendants’ ‘discriminatory housing practices.’”

    Courts DOJ Fair Housing Act Fair Lending Appraisal Mortgages

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  • Agencies emphasize illegality of appraisal discrimination

    Federal Issues

    On February 4, CFPB Fair Lending Director Patrice Ficklin, along with senior staff from the Federal Reserve Board, OCC, FDIC, NCUA, HUD, FHFA, and DOJ, sent a joint letter to The Appraisal Foundation (TAF) emphasizing that discrimination prohibitions under the Fair Housing Act (FHA) and ECOA extend to appraisals. The joint letter, sent in response to a request for comments on proposed changes to the 2023 Appraisal Standards Board Ethics Rule (Ethics Rule) and Advisory Opinion 16, noted that while provisions prohibit an appraiser from relying on “unsupported conclusions relating to characteristics such as race, color, religion, national origin, sex, sexual orientation, gender, marital status, familial status, age, receipt of public assistance income, disability, or an unsupported conclusion that homogeneity of such characteristics is necessary to maximize value,’” the “provisions do not prohibit an appraiser from relying on ‘supported conclusions’ based on such characteristics and, therefore, suggest that such reliance may be permissible.” The letter noted that the federal ban on discrimination under the FHA and ECOA is not limited only to “unsupported” conclusions, and any discussions related to potential appraisal bias should be consistent with all applicable nondiscrimination laws. The joint letter encouraged TAF to present the nondiscrimination requirements as “an essential part of any guidance provided in the Ethics Rule or Advisory Opinion 16 to ensure compliance with fair housing and fair lending laws.”

    In a blog post, Ficklin noted that despite the fact that federal law prohibits racial, religious, and other discrimination in home appraisals, there are still reports of appraisers making “value judgments on biased, unfounded assumptions about borrowers and the neighborhoods in which they live.” Additionally, Ficklin noted that the Bureau is carefully reviewing findings presented in a report funded by the Federal Financial Institutions Examination Council's Appraisal Subcommittee, which raised serious concerns related to existing appraisal standards and provided recommendations with respect to fairness, equity, objectivity, and diversity in appraisals and the training and credentialing of appraisers.

    Federal Issues CFPB Appraisal Fair Lending Fair Housing Act ECOA Federal Reserve OCC FDIC NCUA HUD FHFA DOJ FFIEC Bank Regulatory

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  • Supreme Court vacates $10 million judgment in light of TransUnion ruling


    On January 10, the U.S. Supreme Court issued a short summary disposition granting a petition for a writ of certiorari filed by a lender and an appraisal management company. Rather than hearing arguments in the case, the Court immediately vacated the judgment against the defendants and ordered the U.S. Court of Appeals for the Fourth Circuit to reexamine its decision in light of the Court’s ruling in TransUnion v. Ramirez (which clarified the type of concrete injury necessary to establish Article III standing, and was covered by InfoBytes here).

    As previously covered by InfoBytes, in March 2021, a divided 4th Circuit affirmed a district court’s award of over $10 million in penalties and damages based on a summary judgment that an appraisal practice common before 2009 was unconscionable under the West Virginia Consumer Credit and Protection Act. During the appeal, the defendants argued that summary judgment was wrongfully granted and that the class should not have been certified since individual issues predominated over common ones, but the appellate court majority determined, among other things, that there was not a large number of uninjured members within the plaintiffs’ class because plaintiffs paid for independent appraisals and “received appraisals that were tainted.”

    The defendants argued in their petition to the Court that the 4th Circuit’s “fundamentally unjust” holding could not stand in the wake of TransUnion, which ruled that every class member must be concretely harmed by an alleged statutory violation in order to have Article III standing. According to the defendants, the divided panel “affirmed the class certification and the class-wide statutory-damages award, because the class members all faced the same risk of harm: the appraisers had been ‘exposed’ to the supposed procedural error, and the class members paid for the appraisals, even though the court ‘cannot evaluate whether’ any harm ever materialized.”

    Courts U.S. Supreme Court Fourth Circuit Appellate Appraisal Appraisal Management Companies Settlement Mortgages State Issues Consumer Finance West Virginia

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  • FFIEC proposes amendments to temporary waiver proceedings

    On January 13, the Appraisal Subcommittee (ASC) of the Federal Financial Institutions Examination Council (FFIEC) published a request for comments on proposed amendments to provide greater transparency and clarity to the existing rules of practice and procedure governing temporary waiver proceedings. The existing temporary waiver proceedings, which were promulgated in 1992 under FIRREA, allow temporary waivers to be granted if a state appraiser regulatory agency makes a written determination that a scarcity of state-certified or licensed appraisers in a state or geographical area is causing significant delays in the performance of real estate appraisals utilized in connection with federally related transactions. Temporary waivers terminate once the ASC determines that the significant delays have been eliminated.

    The FFIEC’s notice of proposed rulemaking (NPRM) seeks “to clarify the procedural differences in processing a Request for Temporary Waiver accompanied by a written determination as compared to a Petition requesting the ASC exercise its discretion to initiate a temporary waiver proceeding.” Among other things, the NPRM would allow the ASC to draw a clear distinction between: (i) a state appraiser regulatory agency’s request that is accompanied by a written determination (referred to in the NPRM as a “Request for Temporary Waiver”); and (ii) information received from other persons or entities, which could include a state appraiser regulatory agency (referred to as a “Petition”). As presented in the NPRM’s accompanying flowchart, the procedures will vary depending on whether the ASC has received a Request for Temporary Waiver or a Petition requesting the initiation of a temporary waiver proceeding. Comments on the NPRM must be received by March 14.

    Bank Regulatory Agency Rule-Making & Guidance FFIEC Appraisal FIRREA Temporary Waiver State Issues

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  • Agencies finalize 2022 HPML exemption threshold

    Agency Rule-Making & Guidance

    On November 30, the CFPB, OCC, and Federal Reserve Board published finalized amendments to the official interpretations for regulations implementing Section 129H of TILA, which establishes special appraisal requirements for “higher-priced mortgage loans” (HPMLs). The final rule increases the TILA smaller loan exemption threshold for the special appraisal requirements for HPMLs. Each year the threshold must be readjusted based on the annual percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers. The exemption threshold for 2022 will increase from $27,200 to $28,500 effective January 1.

    Agency Rule-Making & Guidance CFPB OCC Federal Reserve HPML Appraisal Mortgages Bank Regulatory

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  • HUD updates appraisal fair housing compliance

    Federal Issues

    On November 17, HUD issued Mortgagee Letter 2021-27, which provides updates on appraisal fair housing compliance and general appraiser requirements. According to HUD, the letter clarifies FHA’s existing requirements for appraisers and mortgagees on compliance with fair housing laws related to appraisal of properties that will serve as security for FHA-insured mortgages, and applies to all FHA Single Family Title II Forward and Reverse Mortgage Programs. Among other things, the changes include: (i) revising the Appraisers Post-Approval Requirements section to emphasize compliance with applicable laws, including the Fair Housing Act and all other federal, state, and local antidiscrimination laws; (ii) clarifying language in the Quality of Appraisal section to emphasize the requirement that mortgagees ensure the appraisal complies with applicable laws, including the Fair Housing Act and other federal, state, and local antidiscrimination laws; and (iii) restructuring a section of the General Appraiser Requirements into subsections, which clarifies guidance to the nondiscrimination policy and compliance with FHA guidelines and appraiser conduct. The mortgagee letter is effective immediately.

    Federal Issues HUD Mortgages FHA Consumer Finance Appraisal Fair Housing Act

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