Use of Census Data in AVM & Discrimination
Every 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.