DOJ/CFPB: Appraisal Bias a Lender Problem Too
The agencies’ “statement of interest” in an appraisal bias court case says lenders can’t rely on an appraisal if they knew, or should have known, it was discriminatory.
WASHINGTON – The Consumer Financial Protection Bureau (CFPB) and Department of Justice (DOJ) filed a Statement of Interest in the United States District Court for the District of Maryland, Connolly & Mott v. Lanham et al.
According to their Statement of Interest, mortgage lenders can be liable under the Federal Housing Administration (FHA) and Equal Credit Opportunity Act (ECOA) for relying on discriminatory appraisals.
CFPB says in an update, “The law is clear that mortgage lenders cannot take race, sex or any other prohibited basis 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.”
According to CFPB, holding lenders who knew or should have known harmless would “undermine the purpose of the FHA and ECOA to guard against discrimination in housing and access to credit.”
The court case involves a Baltimore Black couple who wanted to refinance their home to a lower interest rate in May 2021. A mortgage lender, loanDepot, conditionally approved the refi subject to an appraisal by 20/20 Valuations, owned by Shane Lanham. A few days after the appraisal, the loanDepot denied the application because the appraisal valued the home at only $472,000.
Months later, the couple applied for a refi through a different lender but decided to “whitewash” their home first, removing all evidence that a Black family lived there. That appraisal came in at $750,000.
The family sued loanDepot, 20/20 Valuations, and Mr. 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 can't be held liable for making a lending decision based on a discriminatory appraisal because the alleged discrimination was committed by a third-party appraiser.
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