A new rule was passed by the Consumer Financial Protection Bureau (CFPB) to address the use of artificial intelligence and complicated algorithms in home valuations, both now and in the future.
A proper home appraisal is essential whether purchasing or selling a property. This appraisal is used by mortgage lenders to calculate the maximum amount they will lend on a property. Computer models have been used by participants in the mortgage and real estate industries over the years to determine the worth of a property.
Many even watch the worth of their own homes, which are produced by these algorithmic appraisal techniques, on well-known real estate websites. These models can resemble what many people refer to as artificial intelligence as they become more complicated and incorporate more factors.
These computer models cannot be unreliable or biased, even if they can offer crucial information to lenders, buyers, and sellers. Although it can be tempting to believe that bias can be eliminated from computer models, this is not possible.
An Overview of CFPB Efforts
The new rule approved today mandates that businesses using these algorithmic appraisal tools implement safeguards to prevent data manipulation, maintain high levels of confidence in home value estimates, steer clear of conflicts of interest, and adhere to applicable nondiscrimination laws.
The new regulation is a component of the CFPB’s attempts to guarantee fairness, nondiscrimination, and conflict-free nature of the appraisal process. Per the rule, the Appraisal Foundation has major issues that need to be fixed, and the CFPB has been trying to give consumers the ability to contest faulty appraisals and give states the resources to fight discriminatory appraisals.
Together with the Federal Reserve Board of Governors, the Office of the Comptroller of the Currency, the Federal Housing Finance Agency, the Federal Deposit Insurance Corporation, and the National Credit Union Administration, a regulation on algorithmic evaluation tools was produced. Approximately a year after receiving final agency approval, the regulation will go into force.
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