FFIEC Issues Guiding Principles for Exams on Residential Property Appraisals

The Federal Financial Institutions Examinations Council (FFIEC) outlined principles for its member entities to consider when evaluating compliance and risk management practices concerning valuation discrimination and bias in residential real estate.

In its statement, the FFIEC said the principles were intended to (i) mitigate risks that may arise due to potential discrimination or bias in those practices and (ii) promote credible valuations. The FFIEC explained that real estate valuations, which institutions rely on, are used to assess the level of collateral support in residential credit decisions and that deficiencies in such valuations lead to "increased safety and soundness risks, as well as consumer harm and have an adverse impact on borrowers and their communities."

The FFIEC set forth principles for (i) consumer compliance examinations under laws and regulations prohibiting discrimination and other illegal practices and (ii) safety and soundness examinations focusing on an institution’s financial condition and operations. The FFIEC stated that the "principles focus on the review and assessment of institutions’ practices for identifying, monitoring, and controlling the risk of valuation discrimination or bias." The FFIEC identified the applicable statutes and regulations, including the Equal Credit Opportunity Act (ECOA) and its implementing regulation, Regulation B (prohibiting discrimination in credit transactions), the Fair Housing Act (FHA), the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z, and Section 5 of the Federal Trade Commission Act (FTC Act) (prohibiting unfair or deceptive acts or practices).