CFPB Proposes Options Regarding Algorithmic Bias in Home Valuations

The CFPB’s Small Business Advisory Review Panel for AVM Rulemaking recently issued an outline of proposals and alternatives under consideration to prevent algorithmic bias in home valuations, as part of the process that will lead the CFPB and other agencies to develop a proposed rule to implement FIRREA Section 1125, setting quality control standards for automated valuation models (AVMs).  This outline was issued in keeping with the CFPB’s obligation under the Small Business Regulatory Enforcement Fairness Act to review certain proposed rules to determine their potential impact on small businesses.  Written feedback will be accepted from Small Entity Representatives (SERs) through April 8, 2022, and from other stakeholders through May 13, 2022.

The CFPB’s statement accompanying the release of the outline situates this publication in the context of other recent reports concerning appraisal bias, and emphasized the importance of accurate home valuations to consumers.  The CFPB noted that it “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 CFPB, with the other agencies, intends to “strengthen oversight” of AVMs, including steps to “[e]nsure a high level of confidence in the estimates produced by automated valuation models; [p]rotect against the manipulation of data; [s]eek to avoid conflicts of interest; [r]equire random sample testing and reviews; and [a]ccount for any other such factor that the agencies determine to be appropriate.”