CFPB blogs on protecting homeowners from discriminatory appraisals

The CFPB has posted a Bureau Blog article, "Protecting homeowners from discriminatory home appraisals," as a vehicle for announcing the Bureau's Joint Statement of Interest filing (with the Justice Department) in the U.S. District Court for the District of Maryland in the case of Connolly & Mott v. Lanham et al.

The case involves a Black couple — Nathan Connolly and Shani Mott — living in Baltimore who sought to refinance their home to take advantage of low interest rates. The mortgage lender, loanDepot, conditionally approved the loan request subject to an appraisal by 20/20 Valuations, owned by Shane Lanham. Connolly and Mott claim that when Lanham visited their home for the appraisal, the couple and their children were present and the home included family photos and other décor making it clear that a Black family lived there. A few days after Lanham's visit, loanDepot called the family to deny the application because the appraisal valued the property at only $472,000.

A few months later, the family applied for a new loan from a different mortgage lender. This time, the couple "whitewashed" their home —replacing family photos with photos 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 home appraised for $750,000. Although interest rates had increased since the initial application denial, they were able to refinance their home.

Connolly and Mott sued the first lender, loanDepot, 20/20 Valuations, and Lanham under the Equal Credit Opportunity Act, the Fair Housing Act and other federal and state civil rights laws. loanDepot's defense is that it cannot be held liable for making a lending decision based on a discriminatory appraisal committed by a third-party.

The Statement of Interest explains that mortgage lenders can be liable under the FHA and ECOA for relying on discriminatory appraisals. Lenders cannot relay on an appraisal if they know, or should have known, that the appraisal was discriminatory. A contrary result with directly undermine the purpose of the FHA and ECOA to guard against discrimination in housing and access to credit.