Woke ‘Bounty’ Bill Will Chill Speech of New York Appraisers
A bill being crafted by the New York state Senate’s Finance Committee would, in effect, place a $2,000 bounty on the head of any heretical real estate appraiser in the Empire State who dares conclude a value that fails to satisfy a seller, serial refinancer or commissioned broker in a deal. Vulnerable buyers, who could be paying off inflated loans based on coerced values, would simply have to live with it.
If enacted, the bill would authorize fines to be levied on appraisers for a new category of thoughtcrime – something called “appraisal discrimination.” Half the proceeds from the fines would be pumped back into a fund to be used to bankroll deputized citizens to conduct further inquests and parley the pot into a program of self-perpetuating harassment of appraisers. It would dangle a new Sword of Damocles over the heads of these financial truth-tellers. The bill is sponsored by Cordell Cleare of New York’s 30th state Senate District.
The funding mechanism is nothing new. It’s called a “bounty hunter” provision. It allows an agency to eat whatever it can kill. Agencies funded this way quickly cease serving the public interest. The budget structure incentivizes regulatory feeding frenzies and unconstitutional privateering.
The practical definition of “appraiser discrimination”? Any act that results in a blasphemous value opinion – read “insufficient value” – that torpedoes someone’s transaction, thus drawing the ire and formal complaints of sellers and brokers, but not necessarily buyers. Under the bill, the hapless buyer can kindly disintegrate. The program will also keep serial refinancers in debt traps until a courageous appraiser finally risks the fine and the taint of being branded a “discriminator.” More problematic, the chilled speech will have the effect of inflating the comparables appraisers use to support values, causing what “Voice of Appraisal” podcaster Phil Crawford calls “data cancer.”
Another angle to the racket that may come to New York will delight the powerful lobbies of the Realtors, fintechs, banks, nonbank lenders and homebuilders. Some jurisdictions, like California, have radically expanded their menu of protected classes. Thus, more disgruntled sellers, brokers and serial refinancers can file, or threaten to file, discrimination complaints when falling values no longer make deals work.
In California, all that’s required for a discrimination complaint against an appraiser is a disgruntled party who possesses a “race, color, religion (including religious dress, grooming practices, or both), gender (including, but not limited to, pregnancy, childbirth, breastfeeding, and related conditions, and gender identity and gender expression), sexual orientation, marital status, medical condition, military or veteran status, national origin (including language use and possession of a driver’s license issued to persons unable to provide their presence in the United States is authorized under federal law), source of income, ancestry, disability (mental and physical, including, but not limited to, HIV/AIDS status, cancer diagnosis, and genetic characteristics), genetic information, or age.”
This is everyone on the planet.
The racket, if the New York bill is signed into law in its current form, would all but guarantee that real estate prices perpetually rise in the Empire State, and never correct – until they violently collapse, along with confidence in the institutions that promoted the scheme.
The wording of the bill, known as Senate Bill S2919, envisions licensed real estate appraisers in New York having their credentials revoked or suspended or simply being fined based on their perceived mental state at the time of the appraisal. So as not to alarm, the fine is capped at $2,000 per offense. Fifty percent of any money received in fines by the Department of State would be allocated to a recently created fund known as the Anti-Discrimination in Housing Fund. The cash is presided over by New York’s attorney general, sidestepping the state budget appropriations process.
If history is any guide, the pot will be used to promote social and political causes, line the pockets of cronies in Albany, settle scores among competing appraisal firms and beget other mischief.
A macro example of this tendency is a fund maintained by a group called the National Association of Attorneys General. Iowa Attorney General Tom Miller appears to run the private organization as a side hustle. A recent consumer-advocacy campaign focused on the more than $250 million the group has siphoned from state consumer protection settlements and how, on Miller’s watch, this money has been stashed in foreign investments and used for things like overseas trips for attorneys general and their families.
But back to the New York State bill. As its justification, it cites now-discredited findings by the Brookings Institution. The Brookings research falsely claimed homes in majority-black neighborhoods were undervalued by appraisers. The study relied on flawed data, missing coefficients in a regression model – such as income – and unexplained methodology that made the Brookings findings impossible to replicate, wrote Edward Pinto and Tobias Peter of the AEI Housing Center.
In an August 2021 report, the U.S. Federal Reserve looked for signs of racial discrimination in mortgage approvals using new data. It found no signs of discrimination. To the contrary, it found black borrowers tended to hold more debt proportionate to their income than Hispanic borrowers, that Hispanic borrowers held proportionately more debt than white borrowers and that all three groups tended to be more leveraged proportionate to income than Asian borrowers. If anything, this finding suggests African-Americans are again being ensnared by lenders in debt traps, not that they’re being denied credit.
In another report from 2021, mortgage giant Freddie Mac scoured 12 million appraisals between 2015 and 2020 and published a study that found what appeared to be an indictment of the nation’s 80,000 state-licensed appraisers: the sales of homes in black- and Latino-majority census tracts were found more likely to appraise below the negotiated sale price than sales of homes in white-majority tracts. But the report failed to control for concessions and closing costs, which have a greater tendency to be shoehorned into negotiated contract prices in tracts that contain more first-time and cash-poor buyers. Freddie Mac’s own underwriting rules require appraisers to deduct for this, but Freddie did not in its own study.
“The appraiser’s opinion of value must reflect the value of the [appraised] property without concessions,” wrote Washington State appraiser and compliance expert Richard Hagar. “So, is it possible that sale [prices] in poorer neighborhoods were more likely to contain concessions? Yes.” The Freddie Mac report dishonestly ignores this reality. Buried in the report was the begrudging acknowledgment that the comparables selected by appraisers to value homes owned by people of various racial groups tended to be reconciled within ranges that differed little from one another statistically.
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