Use of Census Data in AVM & Discrimination

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Michael Ford
Latest posts by Michael Ford (see all)

Until Census Data is Made Illegal in Appraisals, There will Be DiscriminationEvery single appraisal any of us do has a census tract number as a required element. There are no exceptions for federally regulated transactions.

Even where no bias or prejudice is intended, language that the PC Police have ascribed as being ‘potentially racist, biased or prejudicial’ has long been prohibited.

Buyers clearly do care and weight ‘neighborhood or school or special amenity neighborhoods’ in terms of ‘desirability’, but no appraiser can consider this. We are even prohibited from having people in pictures which could be indicative of race. It’s gotten so nuts that property owner’s own photos of religious icons, family members or ‘other’ symbols adopted special groups such as ‘rainbows’ must now be obscured lest appraiser’s clients are somehow unduly influenced.

Yet with all these prohibitions we continue to (mandatorily) provide lenders, underwriters and any other report users with census tract information which can be accessed with only a few keyboard strokes.

THAT data has ALL the prohibited facts. It identifies all races in the area and their relative predominance; it identifies sex, married and unmarried percentages, ages, and in more recent years it now identifies significant gay-lesbian-TG-etc. if measurable.

Any lenders self-developed or off the shelf risk software can easily factor these into scoring with no one the wiser. Certain ignorant vendors have even confessed that they build algorithms to incorporate demographic information. Look up Quantarium / XOME in other published articles on the topic.

I have personally only run into one instance (on a commercial loan) where a lender was so stupid as to say (through the loan broker) “Oh yeah, I know that area” (based on zip code); and in reference to a property in unincorporated County area adjacent to Compton, CA “It’s a bad area and we aren’t going to loan there.” Clearly a prohibited race or crime perception-based decision. One in which I couldn’t get the loan officer to divulge which lender made that statement so they could be turned in.

Overt bias is not real common. Covert prejudice or ‘risk scoring’ by all the wonderful, unregulated AVM companies out there is another matter.

Their clients can simply tell them they want higher risk ratings assigned via algorithm for certain prohibited census factors than for others, and nobody is going to be the wiser.

Because regulators don’t care enough to look at the pitfalls inherent in automated systems.

I know of NO appraiser that cuts a value or adds value based on racial or religious populations. I know of none that conflate a borrowers ‘social’ status or preferences with property characteristics. I can’t say the same for AVMs tied to census tracts or even zip codes.

Proponents of the ongoing secret prejudice claim they need census data to ‘make sure no one is being discriminated against’, yet it is the very tool that they use that makes ongoing discrimination feasible despite all the fair lending and equal credit opportunity laws that are passed.

Until census data is made an illegal provision in any appraisal or any other aspect of lending decisions, the discrimination will continue.

Image credit flickr - Lindsey Turner
Michael Ford

Michael Ford

Over 28 years appraising all property types and interests, in Southern California real estate. VP/Chairman National Appraiser Peer Review Committee, American Guild of Appraisers, #44OPEIU/AFL-CIO. - Michael Ford on e-AppraisersDirectory

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5 Responses

  1. Avatar Julio E. Sune Jr. says:

    Steering | Discrimination, Ethics and Fair Housing In Real Estate

    Steering – Discriminatory And Prohibited

    As part of their profession, residential real estate agents guide their clients into homes they feel would best correspond to their clients’ tastes and needs. Consciously or unconsciously, the agent’s biases and prejudices may influence the areas and neighborhoods they think will be appropriate for their client. Unfortunately, they may “steer” their clients to neighborhoods or areas they feel are appropriate for their client, given their ethnic background or identity as part of another minority group.

    What Is Steering?

    In real estate, steering is the practice of guiding prospective homeowners or occupants to certain neighborhoods or away from other neighborhoods or areas based on their identity as part of a protected class such as race.

    Why Is Steering Discriminatory?

    The practice of steering is inherently discriminatory, and may deprive someone from finding the home they would have preferred, or would have best suited their needs. The reason is the client is first presented with choices based on their identity as part of a class of people that has been discriminated against. The practice also perpetuates segregations of classes of people to certain areas.

    Steering Is Prohibited In the United States

    As part of the ongoing effort to end discrimination, steering has been outlawed in the United States. On the federal level, steering has been outlawed through the series of legislation that constitutes the Fair Housing Act which specifies the protected classes of people.

    Fair Housing Protected Classes

    The Fair Housing Act defines protected classes as:

    Race
    Color
    Religion
    Sex
    Nation origin
    Disability
    Familial status

    Steering has also been outlawed through legislation on the state level. For example, California has outlawed steering as part of the Unruh Civil Rights Act that was enacted in 1959. The law regulates discrimination by businesses in California which encompasses real estate brokerage.

    Additional discriminatory practices that have been outlawed in the United States include redlining and blockbusting.

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    • Avatar Hardworking Appraiser says:

      Wonderful, dated information that’s been around for years. What does real estate AGENT “steering” have to do with real estate APPRAISERS and valuation of the property?

      I’d also like to know how, according to Joe Biden, I “discriminate” on my appraisals when on almost every purchase appraisal (over 95%) I never MEET or TALK TO the borrower – they are just names on an appraisal order sheet. Am I supposedly figuring out their race simply by their name?? The whole thing is ridiculous and a distraction from the real issues in the industry.

      7
    • Julio-all true and factual but my point was focused on the real culprit that facilitates ongoing racist behavior by those that are so inclined. Behavior that is next to impossible to identify and prevent.

      Even the legitimate purpose to such data collection is of dubious benefit. It causes folks like former VP Biden to ignorantly opine that racism exists without specific instances being cited. It (census) allows data manipulation by sophists for their own ulterior purposes.

      For example (take a very low economic median income area) one could argue “Poor people are clearly being discriminated against by being ‘steered’ to inferior neighborhoods and inferior school districts.” Cause and effect are not remotely related to improper steering of any type- but census data might ‘suggest’ that is the case based on interpretive slant of investigator.

      As for blockbusting-it used to be common in the 1960s-1970s and presumably earlier. I haven’t seen real block busting in over 40 years.

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  2. Ronny on Twitter Ronny on Twitter says:

    great point violation of HUDs guidlines as well…not a peep however as the corporations sink their grimy teeth further into the business of valuation to save them money

    3
  3. Brian Kirkpatrick on Facebook Brian Kirkpatrick on Facebook says:

    Racism won’t die until we stop collecting data to profile people

    2

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Use of Census Data in AVM & Discrimination

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