The CFPB is reviewing bias in Automatic Valuation Models (AVMs). The proposed rules are a joint effort by the Consumer Financial Protection Bureau, the Office of the Controller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration and the Federal Housing Finance Agency. These agencies are concerned AVMS may reflect bias is design and function. The mathematical models rely on biased data resulting in inaccurate valuations. Basically the agencies are stating historical data going back to redlining is built into these models and do not reflect current market data. Remember markets are not static and are always changing.
VaCAP shared Ted Talks by Cathy O’Neil and Tricia Wang back in 2019 in our “Big Data? Thick Data? Human Data?” post. Both of these professionals have a clear understanding of the pitfalls of algorithms in all aspects of life, not just valuation models. Even if you have listened before, it is well worth listening and sharing again.
Don’t be fooled they are listening; the proposed rules are mandated in the Dodd Frank Act as clearly stated in the introduction section of the proposal. Dodd Frank was enacted on July 21, 2010. The real question is why did it take 12 years?
cfpb_avm_outline-of-proposals
About time for sanity
ANY AVM that includes analysis using demographic information tied to census tracts is inherently using prohibited information. Information no appraiser would ever be allowed to consider, let alone incorporate in hidden algorithms.
The biggest source of racism in lending and valuation has always been the federal government. Starting with post-Civil War policies, to FHA Guidelines published in 1934, to mandatory census tract reporting resulting from the Civil Rights Act & Fair Housing Act. Maybe one of the metrics they need to change is the one that keeps quantifying us based on race.
Continued racism is never going to solve problems of racism. Sub Concious or otherwise.