CFPB to increase oversight of automated valuation models

New oversight framework aims to prevent algorithmic bias in home appraisals

CFPB to increase oversight of automated valuation models

The Consumer Financial Protection Bureau (CFPB) has announced that it is ramping up its oversight of automated valuation models after the Federal Housing Finance Agency discovered discriminatory statements in some home appraisals.

Obtaining an accurate home valuation is one of the crucial steps in the mortgage process for homebuyers. However, in-person appraisals and even computer models have been susceptible to bias and inaccuracy, leading to undervaluing or overvaluing of homes that exacerbate existing disparities in the housing market.

Read more: How one firm is overcoming racial bias in the mortgage industry

In a statement, the consumer watchdog said that without proper safeguards, flawed versions of valuation models could digitally redline certain neighborhoods and further embed and perpetuate historical lending, wealth, and home value disparities.

“It is tempting to think that machines crunching numbers can take bias out of the equation, but they can’t,” CFPB head Rohit Chopra said. “This initiative is one of many steps we are taking to ensure that in-person and algorithmic appraisals are fairer and more accurate.”

The agency has outlined options to ensure that they are accurate and fair. According to a release, these options intends to:

  • Ensure a high level of confidence in the estimates produced by automated valuation models;
  • Protect against the manipulation of data;
  • Seek to avoid conflicts of interest;
  • Require random sample testing and reviews; and
  • Account for any other such factor that the agencies determine to be appropriate.