FRB Vice Chair Says Fed Working to Ensure FHA Supervision Keeps Pace with AI

Federal Reserve Board ("FRB") Vice Chair for Supervision Michael S. Barr highlighted the need "to adapt our application of the Fair Housing Act and Equal Credit Opportunity Act" to deal with artificial intelligence and other technological developments.

In remarks before the National Fair Housing Alliance ("NFHA") 2023 National Conference, Mr. Barr said that while AI and machine learning have the potential to expand credit to those who would be otherwise unable to access it, they also carry the risk of (i) violating fair lending laws by perpetuating the same disparities they were designed to prevent in the first place and (ii) exercising biases against protected classes based on historical data sets. Mr. Barr stated that the FRB continues to review financial institutions’ implementation of appropriate risk management and controls.

Mr. Barr also highlighted FRB action to prevent appraisal discrimination and bias in housing mortgage credit transactions. He cited (i) a joint rule proposal to ensure the "credibility and integrity" of automated valuation models and (ii) proposed guidance to help financial institutions incorporate "reconsiderations of value" with regard to home appraisals.

Further, Mr. Barr noted progress in implementing the FRB's Special Purpose Credit Programs ("SPCPs"). These programs are aimed at supporting the creation of lending products and access to credit for economically disadvantaged groups. He stated that large financial institutions have already adopted SPCPs in the past year and that the NFHA has worked with the Mortgage Bankers Association to create an online resource for banks to create SPCPs.