FFIEC Issues Statement on Managing the Appraisal Process to Avoid Bias and Discrimination

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On Feb. 12, 2024, the Federal Financial Institutions Examination Council (FFIEC) issued a Statement on Examination Principles Related to Valuation Discrimination and Bias in Residential Lending, reminding financial institutions that examiners assess institutions’ compliance management systems and risk management practices for identifying and mitigating potential discrimination or bias in residential property valuation practices. It also includes an attachment detailing the below important risk management practices, utilized by examiners, to combat appraisal bias and discrimination. Given the examiner scrutiny, financial institutions would be wise to employ these practices as well.

  • Board and senior management oversight: Evaluation of whether the Board of Directors and management, as appropriate for their respective roles and responsibilities, ensure the institution implements and maintains compliance management systems (including third-party oversight) commensurate with the institution’s residential real estate lending risk profile, including information provided to the board communicating the strength of the consumer compliance program. 
  • Third-party risk management: Evaluation of the institution’s oversight of residential real estate valuation third parties’ consumer compliance-related policies, procedures, internal controls and training. Evaluation of an institution’s due diligence and ongoing monitoring of third parties, including persons or entities that prepare valuation reports, third-party appraisers and appraisal management companies, to assess compliance with consumer protection laws and regulations, including anti-discrimination laws.
  • Policies and procedures: Assessment of the institution’s collateral valuation review function for identifying potentially discriminatory valuation practices or results. 
  • Training program: Assessment of the institution’s training programs to ensure they appropriately address identification of potential discrimination in residential real estate lending and collateral valuation programs, whether internally identified or from consumer inquiries or complaints. 
  • Monitoring and/or audit: Assessment of the institution’s adherence to its policies and procedures designed to identify and address potential discrimination. 
  • Consumer complaints: Evaluation of the institution’s systems or processes for reviewing, documenting, tracking, addressing, monitoring and handling collateral valuation complaints, including those that allege potential discrimination. This includes handling complaints from various channels and sources (such as letters, phone calls, in person, regulators, third-party service providers, emails and social media).

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John Zasada
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John Zasada is a Principal in Doeren Mayhew's Financial Institutions Group, where he assists financial institutions in navigating regulatory compliance.

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