Tag Archives: FHFA


MARCH 25, 2022 – Below is the American Enterprise Institute’s thoughts on the blatantly racist PAVE Report that came out this week. AEI says it better than I ever could. So, I have no comments to add. Well, I did send them thanks for spelling White with a W. Finally, someone with integrity to avoid race baiting.
The Mann

Comments on PAVE’s “Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color”
Reprinted below is a response from the AEI Housing Center to yesterday’s release of the PAVE report on appraiser bias:
On March 23rd, the Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), composed of thirteen federal agencies and offices, released its report entitled “Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color.”
Commentary on PAVE’s conclusion:
PAVE concluded that “Homeownership is often hindered by inequities within current home lending and appraisal processes, which research shows disproportionately impact people in communities of color.”
As noted in the Executive Summary, the report largely rests on three studies for its conclusion: (i) a report by the Brookings Institution, (ii) a note by Freddie Mac, and (iii) a blog post by FHFA.[1] In our work, we have issued lengthy critiques that discredit the first two studies (see our rebuttal to Brookings and to Freddie Mac) and now take the opportunity to respond to the FHFA study.[2] Here is a summary of our findings:
The Brookings and Freddie Mac studies are not based on rigorous data analysis. Most importantly, they conflate race with socio-economic status (SES), i.e. income, buying power, marriage rates, credit scores, etc. Race-based gaps found in the Brookings and Freddie Mac studies either entirely or substantially disappear when adjusting for differences in SES. Furthermore, our analyses show that similar gaps are present in majority White or White-only tracts across different SES levels, raising serious questions regarding a race-based explanation.[3] We also addressed a rebuttal from the Brookings authors to our critique. We found that Perry and Rothwell’s (2021) rebuttal to our critique supported our claim of omitted variable bias, failed to rebuke our methodology, and never addressed our case studies. We also presented solutions based on our findings. The Freddie Mac study took pains to state that its research was both “exploratory” and “preliminary”. Yet PAVE accepted Freddie Mac’s findings at face-value, even though research by Fannie Mae provides a likely, non-race based explanation for the valuation discrepancy found by Freddie Mac. It is worth noting that Fannie Mae’s explanation castes a favorable light on the appraisal industry.
This conflation by both Brookings and Freddie Mac is of critical importance. While there is agreement regarding the symptoms observed by PAVE–racial and ethnic differences in homeownership rates, financial returns of owning a home, and median wealth–ascertaining the causes and workable solutions requires a competition of ideas.[4] PAVE excluded research that was inconvenient or inconsistent with the desired narrative and conclusion.[5]
The FHFA blog post, which we have not addressed until now, stated that in their “review of appraisals, we have observed references to race and ethnicity in the ‘Neighborhood Description’ and other free-form text fields in the appraisal form.” FHFA concluded that the use of such references is evidence of bias as the “racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home” and released 16 specific examples.
While we all can agree with FHFA’s statement that “racial and ethnic composition of the neighborhood should never be a factor that influences the value of a family’s home”, the blog post failed to provide any specifics as to the frequency of such occurrences. It only stated:
From millions of appraisals submitted annually, a keyword search resulted in thousands of potential race-related flags. Individual review finds many instances of keywords to be false positives, but the following are [16] examples of references when the appraiser has clearly included race or other protected class references in the appraisal.
Without more information, one is unable to discern whether this is evidence of a few bad apples or systemic behavior. This is made all the more problematic given that there is other evidence showing no systemic appraisal bias. Unfortunately, PAVE ignored that body of research, to wit:
AEI Housing Center (2021) found that racial bias by appraisers on refinance loans is uncommon and not systemic. To evaluate the existence of bias, the AEI Housing Center assembled a unique dataset with over 240,000 loans for which we knew the race of the borrowers.
Ambrose et al. (2021) concluded that “contrary to media allegations, our statistical analysis found that racial bias by appraisers on refinance loans is uncommon and not systemic.”[6]
Fannie Mae (2022) concluded that for refinance applications “Black borrowers refinancing their home on average received a slightly lower appraisal value relative to automated valuation models” and that “the frequency of ‘undervaluation’ did not have a notable racial pattern.”[7]Interestingly, Fannie Mae (2022) also rebuked the methodological approach in Freddie Mac’s research note that was cited by PAVE as one of the three main studies.[8]
Our conclusion is that PAVE has misdiagnosed the problem.[9] PAVE proposed 21 agency actions. It is highly questionable that these will address racial and ethnic differences in homeownership rate, financial returns of owning a home, or median wealth. In some cases, they may make these differences worse or take the pressure off in finding effective solutions. It also must be noted that HUD, and its predecessors have played a major role in perpetuating segregation and racial wealth disparities.[10] This alone should give pause to any objective reader of the PAVE report.
Rather than PAVE’s finding of “inequities within current home lending and appraisal processes, which research shows disproportionately impact people in communities of color” the real culprit are inequities in SES, which PAVE acknowledges when it states that “[m]uch of the gap in rates of homeownership can be traced to socio-economic factors that differ on average between Black and white homeowners.” While lower SES certainly reflects a legacy of past racism and lingering racial bias, which leaves Blacks at a large income and wealth disadvantage relative to most Whites, PAVE should have addressed this in its policy recommendations. Thus, the PAVE Action Plan, by misdiagnosing the causes of the racial gap, will likely lead to unintended consequences as the Action Plan does not address the root problem.
We agree with PAVE that we ought to support opportunities for income and wealth growth among lower-income households. However, we should address the root cause for lower SES, and not unsubstantiated claims of systemic bias and racism in the housing finance sector.
Based on an objective diagnosis of symptoms and causes using rigorous data analysis, we propose the following solutions:
The housing policy solutions are:
Building generational wealth through sustainable homeownership for low SES households by reducing leverage for aspiring low-income home buyers.
Increasing supply and reducing income stratification through Light Touch Density.
Promoting Walkable Oriented Development in existing neighborhoods with a mix of residential and commercial properties.
Other policy solutions, which might be explored, are:[11]
Encouraging two parents in households with children (single-parent households have been found to be a significant SES factor by a wide ranch of academic researchers).
Enacting occupational licensing reforms and allowing small businesses to be run out of one’s home (this has been found to be a significant barrier to low SES households).
More economical childcare by rolling back burdensome government regulations (childcare costs are a significant barrier to gainful employment by low SES households).
Real school choice for access to quality elementary and secondary education (racial and ethnic minorities would benefit greatly from real school choice).
Improving access to technical and apprenticeship training (this would open up access by low SES households to these well-paying jobs).
Encouraging state and local governments to address public investment disparities relating to minority and lower income neighborhoods.
Recognizing the importance of SES factors is key to fashioning appropriate public and private responses. A misdiagnosis that focuses on other factors will not address the root problem and could potentially lead to unintended consequences. We must be mindful that many public policies aimed at addressing racial discrimination have had unintended consequences that have done substantial harm to low-income households generally, and minority households in particular.

[1] Interagency Task Force on Property Appraisal and Valuation Equity (PAVE), Action Plan to Advance Property Appraisal and Valuation Equity: Closing the Racial Wealth Gap by Addressing Mis-valuations for Families and Communities of Color, March 24, 2022, pp. 2-3.
[2] Despite the AEI Housing Center having undertaken a significant body of research on the topic of racial bias in housing finance over a course of years and notwithstanding efforts to engage with PAVE and some of its members, we were unable to engage with PAVE and our work was not mentioned in the report. Yet, PAVE stated that “Over the past 180 days, the Task Force has undertaken a collaborative and comprehensive approach toward identifying actions to address appraisal bias. This approach involved extensive consultation with subject matter experts and leaders across industry, academia, trade and civil rights groups, and government.”
[3] The same critique to the Brookings paper also applies to research by Howell and Korver-Glenn (2021) and a recent Redfin post on the same topic.
[4] The University of Wisconsin Board of Regents stated this concept best over 125 years ago: “Whatever may be the limitations which trammel inquiry elsewhere, we believe that the great state University of Wisconsin should ever encourage that continual and fearless sifting and winnowing by which alone the truth can be found.” https://news.wisc.edu/sifting-and-winnowing-turns-125/
[5] This goes back to when President Biden in his January 26, 2021 “Memorandum on Redressing Our Nation’s and the Federal Government’s History of Discriminatory Housing Practices and Policies” for the Secretary of HUD cited as fact “a persistent undervaluation of properties owned by families of color.” Thus, PAVE would need to conform to the President’s stated narrative, notwithstanding strong evidence to the contrary. https://www.whitehouse.gov/briefing-room/presidential-actions/2021/01/26/memorandum-on-redressing-our-nations-and-the-federal-governments-history-of-discriminatory-housing-practices-and-policies/
[6] Ambrose, Brent W., James Conklin, N. Edward Coulson, Moussa Diop, and Luis A. Lopez. “Does Appraiser and Borrower Race Affect Valuation?” Available at SSRN 3951587 (2021).
[7] Williamson, Jake and Mark Palim. “Appraising the Appraisal: A closer look at divergent appraisal values for Black and white borrowers refinancing their home.” (2022).
[8] In particular, Fannie Mae wrote that “We chose to study refinance applications, as opposed to home purchase applications, because the appraiser in a refinance transaction typically interacts directly with the homeowner (i.e., the borrower), establishing a pathway for potential bias to influence the appraisal results. The race or ethnicity of the borrower is often disclosed in the loan data, making it possible to directly observe any correlation with value. On the other hand, in a purchase transaction, the appraiser typically does not interact with the buyer (i.e., the borrower) of the property but rather with the seller or the seller’s agent. The availability of racial or ethnic data of sellers and real estate agents is limited, thereby making an analysis of valuation differences by different demographics for purchase transactions limited or incomplete relative to the analysis detailed below using refinance transactions.” (p.3)
[9] At times, PAVE tried to have it both ways. On the topic of undervaluation, which is the main focus in the Freddie Mac analysis because of the negative impact on minority home buyers, the PAVE report stated that a lower appraisal can be beneficial to the buyer but hurtful to the seller as “it limits the seller’s realized home equity gains and therefore impacts the seller’s wealth.” (p.15)
[10] As noted by PAVE throughout the 20th century, the “federal…government systematically implemented discriminatory policies that led to housing segregation.” Not mentioned by PAVE was the U.S. Commerce Department’s role in implementing a zoning regime designed to keep Black and ethnic-minorities out of single-family detached neighborhoods (see Chapter 1, AEI Light Touch Density E-Book), the 1949 Housing Act which resulted in the high-rise public housing and urban renewal programs, both of which worked to the great detriment of Black households and neighborhoods, the 1967 Presidential Task Force on Housing and Urban Development (headed by HUD Secretary Weaver), which proposed a 10-year housing program to eliminate all substandard housing in the U.S. (source: Lyndon Johnson Library), that was enacted in the 1968 Housing and Urban Development Act, the consequences of which led to HUD and FHA destroying many American cities, especially Black neighborhoods (Cities Destroyed for Cash: The FHA Scandal at HUD), the Tax Reform Act of 1986, which created the Low Income Housing Tax Credit, which has perpetuated racial segregation (Chicago tax credit program mostly produces affordable housing in poor black areas, March 15, 2021), the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, which granted HUD the authority to set affordable housing mandates for Fannie Mae and Freddie Mac, and HUD’s 1995 National Homeownership Strategy: Partners in the American Dream, which led to over 10 million foreclosures and did much to create the wealth disparities Blacks now face. All of these failures may be traced to HUD, or its predecessor agencies responsible for federal housing policy.
[11] Many thanks to our AEI colleagues Naomi Schaefer Riley and Angela Rachidi for many of these ideas. Please see their thoughtful analysis: https://reason.com/2021/02/24/fix-family-poverty-with-free-markets-for-once/