Federal Mortgage: Freddie Mac Research Explores the Causes of the Valuation Gap for Homeowners in Minority Neighborhoods

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MCLEAN, Virginia, September 20, 2021 (GLOBE NEWSLETTER) – Freddie mac (OTCQB: FMCC) today released analysis showing appraisal values ​​are more likely to fall below the contract selling price of a home in census tracts with a higher share of black and Latino households , resulting in a valuation gap. The extent of this gap increases as the percentage of Black and Latino individuals in the census tract increases. The research is based on 12 million expertises of purchasing transactions submitted to Freddie mac between 2015 and 2020 via the Uniform Collateral Data Portal.

“A valuation below the contract selling price may allow a buyer to renegotiate with a seller, but it could also mean that families might miss out on all the benefits of homeownership or be unable to secure the funding needed to reach the American. Dream in the first place. This is a persistent problem that disproportionately affects hundreds of thousands of black and Latino applicants, ”said Michael bradley, senior vice president of modeling, econometrics, data science and analytics in Freddie mac’s Single-family division. “Our research marks the start of a global effort to better understand the main factors contributing to the valuation gap. Our goal is to develop solutions to this persistent problem, including valuation best practices, uniform standards for automated valuation models, improved consumer information, improved value processes, and review procedures. revised fair loan and risk assessments.

Research Highlights:

  • The identified assessment gaps are not caused by only a small fraction of assessors – a large portion of assessors who completed assessments in minority and non-minority areas generated statistically significant differences.
  • Black and Latino lot properties receive appraisal values ​​below the contract price more often than White lots – 12.5% ​​of Black lot properties receive appraisal values ​​below the contract price, up from 7 , 4% for those of the White lots, which is a difference of 5.2%.
  • As the concentration of Black or Latino individuals in a census tract increases, the valuation gap increases. For example, as the population of Latino individuals increases, the property valuation gap in Latin American regions increases from 7.7% to 9.4%.
  • Differences in comparable selling distances, comparable reconciliations, differences in comparable selling prices and possible systematic overpayments for properties by minorities can only explain a small part of the valuation differences observed for properties. minority plots.

An analysis was conducted on the valuations for the purchase of a single family single unit home. Numerous robustness checks from different perspectives were carried out as part of the analysis, including by type of assessment, type of occupancy, condition of property, housing trend indicated in the assessment report and by level of ‘urbanization. In addition, an analysis was carried out on the 30 main metropolitan statistical regions. The trends observed on the basis of aggregated national data mostly persist; thus, valuation gaps seem pervasive.

“Equity in housing is a crucial issue and a Freddie mac takes it very seriously, ”said Pamela Perry, single-family vice-president of fair housing at Freddie mac. “We are uniquely positioned to explore potential gaps and provide data-driven research like this to advance solutions that promote fairness throughout the assessment process. In addition, we are committed to collaborating with Assessment institute to review the analysis in depth so that we can work together to identify causes and solutions.

Freddie mac will continue to explore the possibilities of exploiting various methods of data collection, examining data-driven analyzes and developing supporting tools to create new approaches across the evaluation spectrum. The company is also testing whether alternatives to traditional appraisals offer a more objective analysis of the value of the property.

The company is a lead partner of the Appraisal Institute’s Appraiser Diversity Initiative, which is committed to creating a more diverse next generation of assessors and is a member of the REACh Project Assessment Working Group. The Comptroller of the Currency REACh initiative is dedicated to financial inclusion through better access to capital.

Freddie mac makes the home possible for millions of families and individuals by providing mortgage capital to lenders. Since our creation by Congress in 1970, we made housing more accessible and affordable for buyers and renters in communities across the country. We are building a better housing finance system for buyers, tenants, lenders, investors and taxpayers. Learn more at FreddieMac.com, Twitter @FreddieMac, and Freddie Mac’s blog FreddieMac.com/blog.

CONTACT WITH THE MEDIA:

Chad wandler
709-903-2446
[email protected]

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Source: Freddie mac

2021 GlobeNewswire, Inc., source Press Releases


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