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Industry Response to CFPB/DOJ Statement on Appraisal Bias

The Mortgage Bankers Association (MBA) has filed an amicus brief in response to a Statement of Interest filed by the Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) examining the liability standard that would apply to lenders for the acts of independent, third-party appraisers.

“Appraisal bias is unacceptable, and MBA is working with policymakers and industry stakeholders to develop solutions that ensure borrowers receive fair, equitable, accurate appraisals,” said MBA President and CEO Robert D. Broeksmit, CMB. “Following the Great Financial Crisis, Congress and regulators established rules to ensure appraiser independence by limiting the role of mortgage lenders in the appraisal process. By federal design, lenders have extremely limited control over the actions of appraisers and are subject to other legal responsibilities that prevent them from influencing or participating in the appraisal process.”

Of concerned by the MBA are the arguments made by the CFPB and DOJ in the Statement of Interest that would hold lenders liable for the actions of an appraiser who is neither an employee nor an agent of the lender. MBA’s brief, filed in the U.S. District Court for the District of Maryland in Nathan Connolly and Shani Mott v. Shane Lanham, 20/20 Valuations, LLC, and loanDepot.com, LLC, respectfully requests that the Court recognize that a lender is not liable for the alleged actions of an independent appraiser who was not chosen by the lender.

“Our members have a substantial interest in this case because there is no existing legal authority to hold a lender liable for the acts of a third-party appraiser. In fact, the liability that does exist is for improperly interfering with an appraiser’s independent judgment,” said Broeksmit. “We disagree with the CFPB’s and DOJ’s statement that tries to extend liability to lenders for bias arising from the use of independent appraisers.”

According to the case, in May of 2021, a Black couple living in Baltimore sought to refinance their home to take advantage of low interest rates. The lender they applied to–loanDepot–conditionally approved the couple’s loan subject to an appraisal by an independent third party, Parkville, Maryland-based 20/20 Valuations, owned by Shane Lanham.

In the suit, the couple claims that when Lanham visited the home for the appraisal, the couple and their children—all of whom are Black—were present, and the home included family photos and other décor making it clear that a Black family lived there. A few days after the appraisal, the family received a call from loanDepot denying the application because the appraisal valued the home at only $472,000. Months later, the family applied for a new loan from a new mortgage lender. This time, they explained, they made the difficult decision to “whitewash” their home—replacing family photographs with photographs borrowed from white friends and colleagues, replacing their artwork with stock images featuring white subjects, and having a white colleague stand in for them during the appraisal. Just a few days later, the family learned that their home appraised at $750,000. While they were then able to refinance their loan based on that appraisal, the interest rates at the time were higher than when they first applied.

The family sued loanDepot, 20/20 Valuations, and Lanham under ECOA, the Fair Housing Act (FHA), and other federal and state civil rights laws. loanDepot is fighting the case by, among other things, suggesting that it cannot be held liable for making a lending decision based on a discriminatory appraisal because the alleged discrimination was committed by a third-party appraiser.

The Statement of Interest filed by the CFPB and DOJ explains that, to the contrary, mortgage lenders can be liable under the FHA and ECOA for relying on discriminatory appraisals. The law is clear that mortgage lenders cannot take race, sex, or any other prohibited bases into account when evaluating the creditworthiness of an applicant. That means lenders can’t rely on an appraisal if they knew, or should have known, that the appraisal was discriminatory. A contrary result would directly undermine the purpose of the FHA and ECOA to guard against discrimination in housing and access to credit. The Statement of Interest also clarifies the pleading standard for FHA and ECOA claims.

MBA’s brief does not address the specific allegations contained within the lawsuit, nor does it take a position regarding the conduct of the appraiser. Rather, the brief outlines MBA’s disagreement with DOJ’s and CFPB’s Statement of Interest, which attempts to impose requirements on lenders beyond the existing federal legal framework for their interactions with third-party appraisers.

Both consumers and lenders can be harmed by inaccurate and biased appraisals. MBA and its members have made improving the valuation process and reducing the risk of appraisal bias a top policy issue, and have prioritized it both as part of its CONVERGENCE initiative to promote more sustainable, affordable housing for minority and low- to moderate-income families and communities, and as part of the Building Generational Wealth Through Homeownership campaign. Through the campaign, the MBA can:

  • Raise awareness of homeownership opportunities for African-American and Hispanic borrowers;
  • Secure policy and program changes to expand homeownership readiness to future borrowers; and
  • Assist current homeowners with maintaining and maximizing the benefits of homeownership.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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