CFPB Approves Rule to Ensure Accuracy and Accountability in the Use of AI and Algorithms in Home Appraisals
Today, the Consumer Financial Protection Bureau approved a new rule to address the current and future applications of complex algorithms and artificial intelligence used to estimate the value of a home.
When buying or selling a home, an accurate home valuation is critical. Mortgage lenders use this valuation to determine how much they will lend on a property. Over the years, players across the real estate and mortgage industry have made use of computer models to estimate a property’s value. On popular real estate websites, many people even track their own home’s value generated from these algorithmic appraisal tools. As these models grow in complexity to incorporate more and more variables, they can resemble what many people often refer to as artificial intelligence.
While these computer models can provide critical insight for buyers, sellers, and lenders, they cannot be inaccurate or discriminatory. It can be tempting to think that computer models can take bias out of the equation, but they can’t.
The new rule we are approving today requires companies that use these algorithmic appraisal tools to put safeguards into place to ensure a high level of confidence in the home value estimates, protect against the manipulation of data, avoid conflicts of interest, and comply with applicable nondiscrimination laws.
The new rule is part of our efforts to ensure that the appraisal system is fair, nondiscriminatory, and free of conflicts of interest. The CFPB has been working to ensure that consumers can challenge an inaccurate appraisal, to fix the serious problems at The Appraisal Foundation, and to provide states with more tools to combat discriminatory appraisals. We are also examining the growing power that appraisal management companies can wield over individual appraisal professionals.
The new rule approved today is also another example of the CFPB’s work to use existing laws on the books to police potential pitfalls when it comes to artificial intelligence. We’ve terminated the program that handed out special legal immunities and favors to individual AI companies that they could exploit to gain an unfair advantage. We’ve issued guidance and reports to make clear that there is no “fancy technology” exemption in our nation’s consumer financial protection and fair lending laws. We’re also building more capacity at the CFPB to address new and emerging technologies.
The rule on algorithmic appraisal tools was developed with the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, the Federal Reserve Board of Governors, the National Credit Union Administration, and the Office of the Comptroller of the Currency. The rule will take effect approximately one year after all agencies provide their final approval.