In a letter released Monday, CFPB Director Rohit Chopra said the Appraisal Foundation — a Washington, D.C.-based nonprofit — was "essentially a lawmaking body," albeit one that is held accountable to neither the general public nor market forces. 

"These issues are deeply troubling as the Appraisal Foundation is one of the most — if not the most — powerful players in America when it comes to appraisals and plays a controlling role in key issues contributing to appraisal bias," Chopra wrote. "As long as the Appraisal Foundation remains an insular body controlled by a small circle, operating behind closed doors, those issues will continue to go unaddressed."

Banks and other lenders rely on appraisals to ensure the collateral value of homes they issue mortgages against. Appraisal bias became a top concern for the Biden administration after several high-profile instances of Black homeowners alleging discrimination by home appraisers in 2020 and 2021, amid a boom in purchases and refinancings.

Chopra's letter summarizes his findings from a yearlong exploration of appraisal bias conducted by the Federal Financial Institutions Examination Council's Appraisal Subcommittee, an intergovernmental agency composed of the CFPB, the Federal Reserve, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency, the National Credit Union Administration, the Department of Housing and Urban Development and the Federal Housing Finance Agency. 

The subcommittee has held four hearings on appraisal bias, during which it has interviewed industry participants, academics and regulatory officials — including leaders from the Appraisal Foundation.

"Throughout those hearings, the witness testimonies point to an insular and contorted governance structure that all but guarantees that the profession and practices remain out of tune with the needs of [the] housing market, and much less likely to address appraisal bias," Chopra wrote.

Following one of the hearings last summer, Chopra singled out the Appraisal Foundation and its "byzantine" approach to regulation as an area of primary concern. 

The foundation was granted rulemaking authority over the appraisal profession in 1989 by the Financial Institutions Reform, Recovery, and Enforcement Act, or FIRREA — one of several pieces of legislation passed in the wake of the savings and loan crisis. It does this by issuing the Uniform Standards of Professional Appraisal Practice, or USPAP, which then inform state-level licensing and regulatory policies. 

Appraisal professionals must pay for USPAP materials. Fees from these sales and licensed rights for related educational programs and materials fund the foundation.

In his letter, Chopra noted that the officials that set these standards and those that serve on the foundation's board of trustees are selected through a nontransparent process — one that has, at times, been influenced by a "pay-to-play" mechanism that gives special nominating priority to paying sponsors or "partners."

The CFPB director also raised issues with the foundation's standards for avoiding conflicts of interest, drawing a sharp line between its code of conduct and that of the federal government.

"The Standards of Ethical Conduct applicable to executive branch employees are 77 pages. The Appraisal Foundation's conflict of interest policies are each under two pages. The code of conduct is four," Chopra wrote. "Unsurprisingly, there are substantial differences in the policies."

The letter made no specific recommendations for how the foundation or the oversight of it should be changed.