At a recent event at the Brookings Institute, U.S. Department of Housing and Urban Development (HUD) Secretary Marcia Fudge announced that HUD, through the Federal Housing Administration (FHA), is creating a process that people seeking FHA financing can use to request a review of their appraisal. This can be pursued if it is believed the results may have been skewed by racial bias, HUD announced in a release.

For example, a homeowner who is in the process of refinancing their home with an FHA-insured mortgage can take steps to ensure that their appraisal is fair.

The proposed change to FHA policy represents the first step, HUD stated, to solidify the processes that lenders must follow when a borrower requests a Reconsideration of Value (ROV) review if concerns arise around unlawful discrimination in residential property valuations. This will empower borrowers with a potential plan of recourse if bias in the appraisal process is in question.

“HUD is committed to making the appraisal process fair nationwide. We must eliminate bias in home valuations so that everyone can equally reap the benefit of wealth – and intergenerational wealth – that come along with homeownership,” Fudge said in the release. “This announcement is an important step forward in rooting out appraisal bias in this country.”

Under the ROV proposal, lenders will have clear guidance regarding how to review requests from borrowers for a reconsider of value for the appraisal conducted in conjunction with their application for FHA-insured mortgage financing. It also provides guidance for obtaining a second appraisal when material deficiencies are documented, and the appraiser is unwilling to resolve them. Material deficiencies include when a Fair Housing violation has occurred, or bias has been identified on a property valuation report.

Additionally, this draft proposal supports the Biden-Harris administration’s PAVE Action Plan commitments and the continued work of the Interagency Task Force. The action plan represents the most wide-ranging set of equity reforms to the home appraisal process since landmark financial reform, according to the release, thus creating greater opportunities to embed concrete strategies such as this into the homebuying process.

“FHA is committed to eliminating bias in residential valuations and is taking multiple actions to enhance information, process, and documentation requirements related to this important issue,” the release said. “FHA is asking for stakeholder feedback to identify barriers and impediments that the draft ROV process may impose on the lending process.”

Any interested party is welcome to provide input. Stakeholders are encouraged to provide feedback on the Draft ML by emailing the Feedback Response Worksheet located in the Drafting Table to the FHA at [email protected].  The feedback period is open until Feb. 2.