The Mortgage Bankers Association (MBA) filed an amicus brief on Friday in response to the Consumer Financial Protection Bureau (CFPB) and the Department of Justice‘s interest in determining a liability standard that would apply to lenders in cases of alleged bias by third-party appraisers.
The mortgage trade group said it was concerned that the CFPB and DOJ would hold lenders liable for the actions of an appraiser, who is neither an employee nor an agent of the lender, a reference to a case in U.S. District Court in Maryland in which an appraiser, Shane Lanham, is being sued, as well as the lender, loanDepot, related to alleged racial bias.
Because of rules put in place following the Great Financial Crisis, lenders subcontract the appraisal to third-party valuation companies, which are independent and provide a valuation that often determines whether the loan is funded.
“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,” MA President and CEO Bob 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.”
The amicus brief filed with the court does not address the allegation made by Nathan Connolly and Shani Mott, a Black couple in a North Baltimore called Homeland, who received a $472,000 valuation from Lanham’s company, 20/20 Valuations, but then months later received a $750,000 valuation from a different appraiser when the house was “white-washed” and a white friend posed as the homeowner.
In March 2021, Connolly, a history professor at Johns Hopkins University who is an expert on redlining and the legacy of housing discrimination, and Mott, were approved for a refinancing with loanDepot at a rate of 2.25% and were told their home was likely worth more than $550,000. After the appraisal from Lanham came in at $472,000, loanDepot said it would not fund the loan.
The complaint alleges that Lanham “cherry-picked low-value homes” as comparables while ignoring sales in nearby majority-white areas that had higher values.
Of the three comps with values ranging from $435,000 to $545,000, one was located outside of Homeland proper, in a majority-Black census block. A fourth comparable, which sold for $650,000, was not used in calculating the value of the home, according to the suit.
Seven months later, Rocket Mortgage approved a refinancing after the house received an appraisal of $750,000 without any meaningful changes having been made.
In January 2023, Lanham filed a counterclaim against the couple.
“Falsely labeling someone a ‘racist’ and falsely accusing someone of racism are among the most damaging, hurtful, and destructive attacks in today’s society,” he wrote in the suit.
Lanham said the label had a “devastating impact” on his reputation, business, livelihood and well-being.
Lanham listed technical arguments for providing a valuation of $475,000. Among them, Lanham said the property next door was listed for sale at $500,000 and had been lowered to $475,000 only 10 days after he had completed his appraisal. The home sold two months later for $465,000. Lanham also said that the second appraisal was done seven months later, didn’t include the home next door as a comp, and relied on home sales that had not even yet occurred.
While the MBA conceded that there is appraisal bias and it is “unacceptable,” the trade group said the DOJ and CFPB’s statement of interest in the Lanham case “attempts to impose requirements on lenders beyond the existing federal legal framework for their interactions with third-party appraisers.”