MBA aims to distance lenders from appraisal decisions in legal filing

The Mortgage Bankers Association filed an amicus brief Friday in regards to a discrimination lawsuit involving loanDepot, seeking to emphasize the business distinction between home appraisal and lending industries.

The move comes after the Consumer Financial Protection Bureau and Department of Justice issued a statement of interest in mid March in the case, where they alluded to potential violations of the Fair Housing Act and Equal Credit Opportunity Act. 

Without commenting on the specifics of the lawsuit nor the actions of the defendants, the MBA asked the court to recognize that a mortgage lender should not be liable for the alleged actions of an appraiser it does not choose. 

"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," MBA President and CEO Bob Broeksmit said in a press release. 

"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," Broeksmit also said.

In the lawsuit Nathan Connolly and Shani Mott v. Shane Lanham, 20/20 Valuations, LLC, and loanDepot.com that was filed in Maryland district court last summer, a Black couple in Baltimore claimed their property was undervalued during the appraisal process on the basis of their race. LoanDepot later denied the couple's refinance application based on the low valuation provided. In their filing, the couple also said their loan originator at loanDepot did not properly advise them of the window of time available to contest the appraiser's findings.

Connolly and Mott eventually refinanced their loan with another company after a new appraisal, for which photos of themselves were removed from the home and replaced by photos of white friends, came in almost 60% higher. 

Amicus briefs are typically filed by interested parties who would not face direct impact from a verdict but have a strong interest in the outcome. The MBA said the statement from the CFPB and DOJ attempts to impose requirements on lenders beyond existing regulations governing relationships with outside appraisers. 

"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," Broeksmit said.

At the time the federal agencies submitted their statement of interest, Kristen Clarke, assistant attorney general for the Justice Department's civil rights division, said, "The Justice Department is working to ensure an open and fair housing market by taking on appraisal bias, modern-day redlining, discriminatory loan pricing practices, and other forms of discrimination that may rear their ugly head at any stage of the home-buying process."

The current Maryland proceeding takes place as efforts made by housing groups and government divisions to address redlining and racial bias within the appraisal industry noticeably gather momentum this year. 

Thus far in 2023, the Department of Housing and Urban Development proposed an initiative permitting loan applicants to challenge a perceived unfair valuation, while several federal agencies signaled they were prepared to increase regulatory oversight of the appraisal process to curb discrimination. In January, the Department of Veterans Affairs also said it had updated oversight procedures to try and eliminate appraisal bias against borrowers of its loans.  

Appraisal bias allegations continue to make headlines across the country. In March, a Black couple settled with its appraiser for an undisclosed sum in a Northern California case bearing several similarities to the filing involving loanDepot. To comply with conditions of that settlement, the California defendant agreed to attend local anti discrimination training, as well as watch a related documentary. No lender was listed as a defendant in the lawsuit.

Meanwhile, a Cincinnati borrower also raised racial bias allegations to the CFPB and HUD earlier this year following his attempts to refinance multifamily properties he owned. The businessman said he missed out on favorable rates in early 2022 due to erroneous valuations and foot-dragging on the part of his lender and appraisers. A lawsuit has yet to be filed.