On February 23, 2022, the Consumer Financial Protection Bureau (CFPB) issued an outline of proposals in an effort to address systemic issues in a widely-used home mortgage valuation tool that can lead to biased and discriminatory outcomes without proper safeguards.
In Fall 2021, the CFPB acknowledged that automated valuation models (AVMs), used to determine the value of a mortgage, “could digitally redline certain neighborhoods and further embed and perpetuate historical lending, wealth, and home value disparities.” Specifically, the CFPB noted that bias-driven AVMs can result in overvaluing homes, which can make resale more difficult and foreclosure more likely, undervaluing homes, which can prevent refinancing and loss of equity, and systematic undervaluations driven by bias, which can worsen existing disparities in the housing market.
The CFPB is now pursuing rulemaking in an attempt to avoid perpetuating the same imbedded biases in the future. Before issuing a proposed rule on the AVMs, the CFPB will work with an advisory panel and will seek input from entities that would likely be subject to the rulemaking. The advisory panel will then issue a report that will help guide the rulemaking process.
More information about AVMs and the CFPB’s rulemaking can be found here. If you have any questions, or would like more information, please contact Eaton Peabody’s Business Practice Group Chair, Gretchen Jones, at gjones@eatonpeabody.com.