CFPB Issues Guidance on Home Appraisal Discrimination
On March 13, 2023, the Consumer Financial Protection Bureau (CFPB) issued a blog about bias in home appraisals. The CFPB explains the Equal Housing Opportunity Act (ECOA) and the Fair Housing Act (FHA) apply to home appraisals. As such, appraiser conduct and the use of appraisals by mortgage lenders must be free from discriminatory conduct. The CFPB announced it filed a statement of interest in the United States District Court for the District of Maryland in the case of Connolly & Mott v. Lanham et al. In that case, a black couple sought to refinance their mortgage with loanDepot. The couple claims that when the appraisal company, owned by Mr. 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 a black family lived there. A few days after the appraisal, the family received a call from the lender 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. The new appraisal appraised their home 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 and Mr. Lanham for violating ECOA and FHA, and other federal and state civil rights laws. loanDepot is fighting the case by arguing 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. The CFPB believes mortgage lenders can be liable under the FHA and ECOA for relying on discriminatory appraisals. According to the CFPB, 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. Should you have questions regarding remaining compliant with ECOA and FHA regulations, contact Doeren Mayhew’s Financial Institutions Group today.