In amicus brief, MBA seeks to stem appraisal bias liability for lenders

Brief filed in case where homeowners allege appraiser undervalued their property due to race

Seeking to underscore the distinction between the mortgage and appraisal spheres and reduce lender liability relating to acts by independent appraisers, the Mortgage Bankers Association (MBA) filed an amicus brief in a legal case involving potential appraisal bias.

The brief, filed Friday in U.S. District Court in Maryland, is in support of LoanDepot in response to a statement of interest from the Consumer Financial Protection Bureau (CFPB) and the Department of Justice. According to the case — Nathan Connolly and Shani Mott v. Shane Lanham, 20/20 Valuations LLC and LLC — the plaintiffs, Connolly and Mott, applied to refinance their home with LoanDepot, which subsequently hired Lanham through 20/20 Valuations to conduct the appraisal.

Connolly and Mott, who are Black, paid $450,000 in 2017 to buy the home and believed that it had increased in value substantially since then, especially after they paid for significant renovations and home prices skyrocketed during the pandemic-era housing boom. But Lanham appraised the house at $472,000, leading LoanDepot to turn down the couple’s refi bid.

Connolly, a history professor at Johns Hopkins University who frequently teaches about redlining in the real estate industry, alleged that the low appraisal figure was because he and his family are Black. Months after Lanham’s appraisal, they had the house appraised for a different loan request, but this time, they replaced their family photos with those of a white family and had a white colleague stand in as the homeowner. The house was valued at $750,000.

The MBA, which has spent considerable energy and effort to help stem appraisal bias, isn’t necessarily arguing for or against an occurrence of bias in this particular instance. The brief, in fact, doesn’t address the specific allegations in the lawsuit altogether.

But it does state the organization’s trepidations regarding the statement of interest made by the CFPB and the Justice Department. That statement, filed in March, specifically mentions lenders along with appraisers in cases of appraisal discrimination.

“Discriminatory home appraisals are unlawful, perpetuate the racial wealth gap and deny communities of color the benefits of homeownership,” said Kristen Clarke, assistant attorney general of the Justice Department’s Civil Rights Division, in the statement. “When appraisers or lenders treat homebuyers or homeowners differently because of race, they violate federal law.”

“Lenders that discriminate against people seeking homeownership perpetuate inequities that prevent communities from thriving,” CFPB deputy director Zixta Martinez also said in the statement. “CFPB’s statement of interest filing with the Justice Department is one piece of our broader efforts to ensure fair and accurate appraisals in our residential mortgage markets.”

The MBA is concerned that the arguments made by the CFPB and Justice Department will lead to lenders being held accountable for the actions of appraisers who are neither employees nor agents of the lender. The brief requests that the court recognize that a lender is not liable for the alleged actions of an independent appraiser. (Connolly and Mott allege in their case that they brought their concerns of regrading a discriminatory appraisal to LoanDepot, but the company still denied the loan.)

“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 Bob Broeksmit, the MBA’s president and CEO. “Following the Great Financial Crisis, Congress and regulators established new rules to ensure appraiser independence by limiting the role of mortgage lenders in the appraisal process.

“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,” Broeksmit said. “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.”


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