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Federal regulators are looking to ramp up oversight of automated valuation models (AVMs) used for home appraisals, voicing concerns that the algorithms used could carry risks of bias just like a human appraiser.
A "For Sale" sign stands in front of a home that is in the process of being sold in Monroe, Wash., outside of Seattle. (AP Photo/Elaine Thompson, File) (AP Photo/Elaine Thompson, File / AP Newsroom)
The Consumer Financial Protection Bureau (CFPB) has rolled out a set of proposed options aimed at ensuring that automated appraisals do not violate fair lending laws, and is working with other federal agencies to bolster oversight of the valuation models.
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"It is tempting to think that machines crunching numbers can take bias out of the equation, but they can’t," CFPB Director Rohit Chopra said in a statement. "This initiative is one of many steps we are taking to ensure that in-person and algorithmic appraisals are fairer and more accurate."
CFPB Director Rohit Chopra (Photographer: Andrew Harrer/Bloomberg via Getty Images) (Photographer: Andrew Harrer/Bloomberg via Getty Images / Getty Images)
"Computer models and algorithms are additional tools for mortgage lenders and appraisers to improve valuation accuracy," the agency noted in a press release. "However, automated valuation models can pose fair lending risks to homebuyers and homeowners."
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The announcement goes on to say that "The CFPB is particularly concerned that without proper safeguards, flawed versions of these models could digitally redline certain neighborhoods and further embed and perpetuate historical lending, wealth, and home value disparities."
A realty company's signs rest on several lawns in front of newly constructed houses in Brandon, Miss. (AP Photo/Rogelio V. Solis, File / AP Newsroom)
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One of the options being floated would require lenders to ensure that AVMs used by an appraiser do not violate non-discrimination laws. The CFPB has submitted the proposals to a Small Business Review Panel for review, to determine how compliance might impact small entities. The CFPB did not cite any examples of computerized appraisal system bias in its press release announcing the new initiative.