July 2024. This broad guidance will apply to all situations where there may be concerns about the accuracy of an appraisal or valuation, but it specifically emphasizes fair lending concerns. “Prohibited discrimination” is the first item listed in the guidance as a possible cause of deficiencies in valuations. The guidance states that appraisal bias, if not remedied, would be considered a violation of the Equal Credit Opportunity Act (ECOA) and Regulation B. The ROV Guidance also reiterates, as the agencies have asserted in other contexts, that financial institutions are responsible for monitoring the compliance of third parties, including appraisers. The agencies also recently published a final rule on the use of automated valuation models (AVMs) in credit decisions, explicitly requiring that banks ensure that the AVMs they use “comply with applicable nondiscrimination laws.” While the AVM guidance expresses regulator concern about automation and artificial intelligence — another recent focus — it also is targeted at the issue of discrimination in valuations and builds on both the ROV guidance and the lawsuits in which federal agencies are participating. Taken together, these regulator actions demonstrate that bank reviews of appraisals and valuations should be calibrated to detect discriminatory bias, and the lawsuits suggest a few items that may be worth extra scrutiny. One of these is the selection of comparable properties or “comps,” as they are often called by appraisers and lenders. Lawsuits have alleged that the comps selected for an appraisal have reflected the race or ethnicity of the homeowner more than the specifics of the property itself. For banks, the takeaway is that when the selected comps are not the recently sold properties closest to the appraised property, the bank should examine the reason that more distant properties were used. 16 NEBRASKA BANKER
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