Citing concerns about biases in automated home appraisal models, the Consumer Financial Protection Bureau could create rules to ensure that computer models determining home valuations are accurate and fair.

The CFPB said yesterday that it has created several options for regulating the use of algorithms in home appraisals.

“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.”

The CPFB said both in-person and algorithmic appraisals appear susceptible to bias and inaccuracy without appropriate safeguards.

“Obtaining an accurate estimate of a home’s worth is one of the most important steps in the mortgage process for homebuyers,” the CFPB announcement said. “Inaccurate valuations, both too high and too low, can pose risks to consumers.”

The agency said the Dodd-Frank Wall Street Reform and Consumer Protection Act gave the CFPB and other regulators responsibility for implementing rules on these models.

While noting that computer models and algorithms help mortgage lenders and appraisers improve valuation accuracy, the CFPB said automated valuation models can pose fair lending risks to homebuyers and homeowners.

“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,” the announcement said.

The CFPB said its goals for the possible rules include:

  • Ensuring a high level of confidence in the estimates produced by automated valuation models;
  • Protecting against the manipulation of data;
  • Avoiding conflicts of interest;
  • Requiring random sample testing and reviews.

The agency said it will review the options being considered for proposed rulemaking to determine the potential impact on small businesses.

CFPB to Consider Rules for Automated Home Appraisals

by Banker & Tradesman time to read: 1 min