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HUD Secretary Fudge: ‘We want more accountability and oversight’ of racial bias in housing

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Secretary of Housing and Urban Development Marcia Fudge sits down with Yahoo Finance's Ronda Lee to discuss housing appraisals that devalue communities of color, redlining, and President Biden's PAVE Task Force.

Video Transcript

[MUSIC PLAYING]

RONDA LEE: Welcome back. I'm Ronda Lee. Everyone understands that home equity creates generational wealth. However, for Black and Latinx Americans, home ownership doesn't render the same result. Joining me now is Secretary of Housing and HUD Development Marcia Fudge.

Thank you for being here, Secretary Fudge. So--

MARCIA FUDGE: Thank you.

RONDA LEE: --one of the things I want to jump into is the Tate versus Miller. I think most Americans have heard the story. It was in the task force action plan of the Black homeowners in Marine City. They had their home appraised. It was a low value.

They had it reappraised, and it came back $500,000 more. You guys use them as an example-- as a reason for the task force. So can you go a little bit into what this is and why appraisal bias is on the radar for PAVE?

MARCIA FUDGE: Well, I would say to you that we did not use them as a reason for the task force. The task force was actually an idea of the president when we went to Tulsa, Oklahoma, for their 100th-- for the 100th anniversary of the massacre. And so the president came up with the idea of let's try to find ways to create and build institutional wealth for people of color.

The biggest thing we do in our society, in our culture to build wealth is home ownership. So if we start to devalue the homes of people of color and poor people, then we have taken away the opportunity to build wealth. I tell this to people all the time.

I live two doors from an all-white community. I live in an all-Black community. My home is valued at $25,000 less than the house two doors from me. My house is bigger. My lot is bigger. So I am losing equity and wealth every single year at an amount of $25,000 a year.

So what we know is that in order for us to really be able to pass down to the generations that follow us, the wealth that we should have, is we've got to make the process fair. We have to take redlining out of the process because we still look at certain neighborhoods as neighborhoods that are not valued. We have to take away the inherent bias that homes of Black and brown people are worth less. And so this whole concept of appraisal and valuation and equity is something that we know can only make things better for people of color.

RONDA LEE: Secretary Fudge, one of the things that I noticed in the action plan was that you mention-- well, it mentions that appraisal bias was not included in the Fair Housing Act until 1988. So I think most people had just assumed that when the Fair Housing Act came out that appraisals were included in that. But it wasn't until 1988 that appraisal bias-- appraisers were included in the coverage of fair housing.

So it wasn't until recently, in the past 30 years, that there has been a focus on no, you cannot discriminate in undervaluing homes. And the Brookings Institute just came out with their study that showed that homes in Black neighborhoods are undervalued by $48,000 per year, accumulating to, like, a loss of $156 billion for Black homeowners. So when it comes to Black homeowners and they're trying to tap into that equity for college for their children, to refi, what kind of resolutions is the administration looking for to provide them?

MARCIA FUDGE: Well, we've already started to see some because right now DOJ is saying to people it is a violation, it is discrimination if you unfairly appraise properties based upon people's skin color or the location. So we know that DOJ, CFPB, all of the agencies that look at fairness in our system have said it is discriminatory. Even though the Fair Housing Act pulls some of it out, we're saying, across the board, if you discriminate, it is a violation of law.

The other thing we are saying to people is that now what we want is more accountability and more oversight of the people who appraise. You have to understand, Miss Lee, if you have a system where 97% of all the people who appraise properties are white, they have no concept of some of the biases that are inherent within the own-- with the system itself. So now we're saying to people not only do we want oversight and accountability, but we also are telling people what their options are.

You see, most people think if they get a low valuation they have no options, but they do. So we're teaching them about their options. And we are saying to the agencies that oversee it that you've got to do some things, and they are. So we are making some progress, slow but sure, but we are making process because the light is so bright on the appraisal process today that people have to take account of what they have done historically. And they pretty much admit it that there is bias built into their system.

RONDA LEE: Secretary Fudge, one of the things that came from the housing pandemic boom was most people refi, and this is where appraisal bias really hurts homeowners. And the studies have shown that most Black homeowners did not-- or weren't able to take advantage of the pandemic refi boom. And the percentages that were denied refis were extreme-- or double that of white homeowners.

So let's say this housing pandemic, where everybody basically went and refied at lower rates, this was something that most Black homeowners were not able to take advantage of. How do we course correct that? Because at this point rates are higher. They've missed out on the whole point of getting the equity.

MARCIA FUDGE: Well, I do believe it's who you have your mortgage insured by. If you have an FHA insured mortgage, we are making sure that we contact the people that we know qualify for these mortgages. Now, I can't say the same thing for all of the lending institutions.

But we are also looking at the fact that they, too, cannot discriminate. We are saying to them that if you have programs that are specifically set aside to assist underserved communities, there is nothing wrong with that. It is within the confines of the law. It is not discriminatory.

So we are encouraging all of our lenders-- and mind you, FHA, which comes under HUD, finance's pretty much 80% of all of the new home buyers in the United States. And so we can get to them very quickly. And our people are saying to the lenders, this is our expectation of you. Yes, some of them missed out. There's no question about it. But since we have been here since last year, we have made sure that everybody that wanted to could.

RONDA LEE: Thank you, Secretary Fudge.