Letter to David Uejio, Acting Director of Consumer Financial Protection Bureau - Merkley, Wyden, Colleagues Urge Federal Financial Institutions Examination Council to Address Racial Disparities in Housing Appraisal Industry
Dear Acting Director Uejio:
We write to request the Federal Financial Institutions Examination Council (FFIEC), working in coordination with the housing appraisal industry, take action to address disparities in home valuations for communities of color.
Homeownership has consistently been a critical component of American families' ability to build intergenerational wealth. Even following the substantial decline in wealth after the 2008 housing downturn, the net worth of homeowners has significantly outpaced that of renters over time. In fact, it is estimated that the typical homeowner today has a net worth that is about 40 times higher than that of the typical renter.
The Appraisal Institute, the global association representing nearly 17,000 real estate appraisers, recently expressed the need to confront "unconscious valuation bias," which results in home appraisers assessing lower home values to communities of color due to an area's racial makeup. A 2018 Brookings Institution study found that homes in neighborhoods where the share of the population is 50 percent black are valued at roughly half the price as homes in neighborhoods with no black residents. The same study found that differences in home and neighborhood quality do not completely explain the disparities in property values. The report also stated that "homes of similar quality in neighborhoods with similar amenities are worth 23 percent less in majority black neighborhoods, compared to those with very few or no black residents" and "across all majority black neighborhoods, owner-occupied homes are undervalued by $48,000 per home on average, amounting to $156 billion in cumulative losses."
There remain significant disparities in homeownership rates between white families and families of color. Years of discriminatory policies--such as segregation, limited access to federally-backed mortgages, and restrictive neighborhood covenants--have created significant barriers to homeownership for families of color. These structural factors continue to exist today, where there is now an estimated 50-year high in the gap between black and white homeownership rates, as well as persistent gaps for Asian, Hispanic, and Native households.
Given the critical connection between homeownership and wealth, as well as the longstanding structural barriers to homeownership for families of color, it is crucial that appraisers accurately and impartially assess the values of Americans' homes. Therefore, we encourage FFIEC to work with appraisers to reduce the racial appraisal gap and to address the long-term undervaluation of neighborhoods of color. The Appraisal Institute has recently acknowledged the need to address the issue of racial bias in the appraisal industry and committed to diversifying the appraisal profession, and we urge FFIEC and its respective member agencies -- the Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), and the National Credit Union Administration (NCUA) -- to consider near- and long-term structural reforms to address and meaningfully reduce racial bias and improve impartiality in home valuations for communities of color.
We look forward to working with you to address the issue of racial disparities in home valuations and to create more equitable outcomes for communities of color. Thank you for your time and attention to this important issue.