On July 18, 2024, the Consumer Financial Protection Bureau and 4 other government agencies issued guidance to financial institutions about Reconsiderations Of Value (ROVs) in the real estate lending process to avoid litigation for deficient valuations. 

ROVs are valuation reports, which includes reconsideration of appraisals, evaluations, and other means to determine the value of residential property. Specifically, ROVs are a response to a request for a follow-up valuation, after an initial valuation exists to gauge the value of real estate or loan collateral offered by a party seeking a loan. 

The guidance suggests policies and procedures for lenders to address information unconsidered in an initial valuation or identify flaws in an original valuation because accurate valuations of collateral are key to the lending process and avoiding litigation.  

A valuation may be deficient due to unlawful discrimination under both the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (FHA). In fact, the guidance suggests that complaints of discrimination should be addressed by routing those complaints "to the appropriate compliance, legal, and appraisal review staff," in addition to processing the ROV. Such unlawful valuations can prevent the acquisition of loans lenders, blocking potential buyers from purchasing or refinancing homes. 

To read the entire guidance, click here. 

Welcome to the age of AI Discrimination Regs. Do you have an auditing program in place? 

On July 11th, 2024, the New York State Department of Financial Services (DFS) released Circular Letter No. 2024-7 about the expectations for insurers in NYS regarding the use of Emerging Consumer Data & Information Sources (ECDIS) & Artificial Intelligence Systems (AIS) in underwriting and pricing insurance policies.

The goal of these guidelines is to ensure that all insurers adopt & manage ECDIS, AIS, & other predictive models responsibly because these models come with potential systemic biases & reliability issues that could lead to unfair discrimination or adverse effects on vulnerable communities.

Keys:

• Insurers must ensure that ECDIS & AIS complies with all relevant federal / state laws & regulations.
• Use of these models should not result in unfair discrimination, which means that data sources or models do not rely on protected classes & do not produce unfairly discriminatory outcomes.
• Use of ECDIS & AIS must be supported with generally accepted actuarial standards, demonstrating a clear, statistically significant relationship between variables used & risk.
• Insurers must regularly test & document their methodologies to ensure compliance with anti-discrimination laws & to maintain transparency.
• Effective governance frameworks should be established, with senior management & board oversight to manage the risks associated with these technologies.

DFS notes that transparency is crucial with ECDIS and AIS. Insurers must disclose to consumers whether these technologies are used in underwriting or pricing decisions & provide the specific data that influenced these decisions. 

When it comes to third-party vendors, insurers are responsible for understanding & ensuring compliance of any third-party tools, ECDIS, or AIS used. This includes having contracts that allow for audits & cooperation with regulatory inquiries.

If you'd like to read DFS's Circular Letter No. 2024-7 click here. 

Get your anti-discrimination guidance starting on December 10, 2020 on HUD's new searchable website, which will also give guidance on lending, foreclosures, and much more. 

Currently, guidance is available here.  

Starting on December 10, 2020, HUD will make available "a single, searchable, indexed website," and make guidance subject to a 30 day public comment period with a procedure for the public to petition to modify or withdraw guidance per its Interim Final Rule available at 85 FR 71537.

HUD guidance documents "are statements of general applicability and future effect that set forth policy on statutory, regulatory, or technical issues or interpret statute or regulation." In plain English, guidance advises industry as to HUD's interpretation of laws as applicable to described activity. As such, industry is better able to function, in a regulated environment, when industry can request direction on gray areas of law prior to making investment or taking action in that area. 

As background, "[o]n October 9, 2019 (84 FR 55235), the President issued E.O. 13891, “Promoting the Rule of Law Through Improved Agency Guidance Documents," which "requires that each Federal agency take certain actions to ensure the transparent availability and use of guidance documents." This Interim Final Rule is made in satisfaction of the E.O.

• The ADA allows employers to terminate employees, or take other measures, based on the illegal use of opioids. However, legal or prescriptive opioid use cannot be a ground for automatic disqualification and employers must consider a way for the employee to do the job “safely and effectively” 
• Employees who test positive to a drug test must also be given an opportunity to provide information about their legal drug use that may cause a drug result to show opioid use. The employer can ask the employee before the test is done if he/she is taking any such medication or the employer can ask all employees who test positive for an explanation. Such should be established by protocol and implemented consistently. 

• Employees who legally use opioids must be given a reasonable accommodation before getting fired or not considered for a position. This also applies to employees who have a history of opioid, or treatment for opioid addiction, which an employer thinks can interfere with safe and effective job performance.
• Employees may also request a reasonable accommodation from taking prescription opioids to treat pain or from having other medical conditions related to opioid addiction as long as the condition is a disability under the ADA.
• It is the employees’ responsibility to request a reasonable accommodation and employers cannot legally fire or refuse to hire or promote an employee for making the request. A request protocol should be established and applied consistently.
• Employers must provide the reasonable accommodation if it does not involve significant difficulty or expense.