Why US mortgage lenders are ignoring Trump's rollback on home appraisal reviews

Business Times

2 days ago

[NEW YORK] At one mid-sized US mortgage lender, almost a quarter of customers who dispute property appraisals find that the value of their home had been miscalculated.
It's an industry-wide issue that has historically penalised minority groups, and now US President Donald Trump has offered lenders the chance to ignore his predecessor's attempts to make it easier for homeowners to question the valuations assigned by property appraisers. Trump has scrapped some of the guidelines, part of his team's vow to stamp out what it sees as initiatives that support diversity, equity and inclusion (DEI).
Many financial professionals agree that home appraisals can be unreliable and that Black homeowners and other minorities are often put at a significant disadvantage. This can be especially damaging given that home ownership is the top wealth-creation tool in the US, and an appraisal is a key determinant of how much, if anything, someone can borrow.
With their decision to end some of the requirements related to home valuations, however, Trump and his Cabinet members may have little impact on lenders' practices. That's because there's fresh evidence that the changes the Biden administration put in place are supported by the industry.
Some of the country's biggest lenders, including JPMorgan Chase, Bank of America and US Bancorp, said they would make no policy changes as a result of the rollback.
New American Funding, which also is not planning to change its approach, was the only financial institution of more than 10 contacted by Bloomberg to disclose information about disputed home valuations.
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The Tustin, California-based mortgage lender, which provided roughly US$14 billion of mortgage loans last year, said an average 2.5 per cent of its customers request new valuations each month. Of those contested, roughly 22 per cent are found to need an adjustment. New American did not share a breakdown of borrowers' requests by race.
'The changes have made it much easier for the borrower,' said Michelle Rogers, New American's chief valuation officer. 'It's more transparent and the borrower knows they can initiate it.'
The appraisal directives were put in place following a deep dive by the Biden administration into prejudices in the business. One of Trump's housing regulators, Housing and Urban Development Secretary Scott Turner, said rolling them back was part of an attempt by the president to put an end to the 'obsession' with DEI.
The administration also has vowed to make deep cuts to the federal apparatus that enforced fair housing and fair lending laws, from slashing Consumer Financial Protection Bureau staff to gutting the Justice Department's Civil Rights division.
A HUD official who spoke on background said the department's recent reforms simply reverted its stance to the way things were before Biden-era regulators imposed their standards. Lenders are not being barred from letting borrowers dispute their appraisals, said the official who declined to be identified. The White House has not responded to a request for comment.
Black homeowners have long reported having their homes valued more highly after taking down all evidence of their race. Research from the Brookings Institution and the federally controlled housing finance agencies, Fannie Mae and Freddie Mac, has shown that home appraisals can be affected by racial bias, which in turn affects the value of homes in entire neighbourhoods.
Brookings found, for example, that homes in neighbourhoods where the majority of residents are Black are valued between 21 per cent and 23 per cent lower than comparable homes in white neighbourhoods, with appraisal bias as one of several contributing factors. Economists at Freddie Mac reported in 2021 that greater percentages of homes in majority Black and Latino census tracts were undervalued compared with those in white census tracts, leading them to conclude that there was a 'valuation gap' between homes in different neighbourhoods.
The appraisal problem for minority borrowers is also a problem for lenders, since having low appraisals can prevent a homeowner from qualifying for a mortgage refinancing or a new home loan. That means the lender loses out on valuable business.
Banks also suffer when appraisers make mistakes in the opposite direction, valuing properties too highly, because it means the bank cannot safely rely on the value of a property as collateral for a loan.
The reforms that the mortgage industry recently adopted to try to make the appraisal process fairer originated with a Biden administration task force called Pave (for Property Appraisal and Valuation Equity), which was formed in 2021. The group consisted of public officials from 13 different agencies, and its goal was to produce a report with recommended changes to a suite of different mortgage industry standards.
Pave recommended more training for home appraisers and higher standards for appraisers seeking to qualify for professional licenses. Those changes were handled by the Appraisal Foundation, a non-profit organisation that serves as the regulator for home appraisers.
A spokesperson for the foundation declined to comment on the Trump administration's recent changes, but said that new education and licensing standards put in place last year are still in effect.
Pave also called for an industrywide requirement for mortgage lenders to let borrowers request 'a reconsideration of value' (ROV) if they disagreed with an appraiser's determination.
Last year, regulators began requiring mortgage lenders to decide how they would standardise their procedures and to explain them clearly to their customers. In a rare win for the government, the policy received support from the Mortgage Bankers Association.
Federal housing regulation includes a web of rules issued by different agencies, including HUD and also Fannie and Freddie. The new home-appraisal guidance went into effect for all of the housing agencies. But so far, the Trump administration has only rolled back the policy for mortgages insured by the Federal Housing Administration, which help low- to moderate-income families attain home ownership.
On Jul 17, Senator Raphael Warnock, a Democrat from Georgia, proposed a bill that would make mortgage lenders' ROV policies required by law. It would also expand public access to data on mortgage appraisals by forcing a federal housing regulator to more regularly share details.
While fair-housing advocates support the proposal, the bill also has backing from a more unlikely source: the National Association of Mortgage Brokers.
The group represents more than 500,000 mortgage brokers across the US. Its president, Jim Nabors, called the proposed bill 'critical' for ensuring fairness for homebuyers and added: 'Our entire board of directors and membership applaud Senator Warnock.' BLOOMBERG