Banking and Finance Law Daily Wrap Up, EQUAL CREDIT OPPORTUNITY—Mortgage bankers’ amicus brief addresses CFPB, DOJ statement about lenders relying on ‘discriminatory appraisals’, (Apr 25, 2023)

By Thomas G. Wolfe, J.D.

The Mortgage Bankers Association, a non-party, argues in support of a defendant lender in litigation brought by Black homeowners against a real estate appraiser and the lender for alleged violations of federal fair-lending laws.

The Mortgage Bankers Association (MBA) is seeking the approval of the U.S. District Court for the District of Maryland to file an amicus brief in support of defendant lender loanDepot.com’s motion to dismiss the complaint of certain Black homeowners who claim that the lender and a real estate appraiser, 20/20 Valuations, LLC, violated federal fair-lending laws. According to the homeowners’ complaint, the defendants purportedly engaged in racially discriminatory practices in violation of the fair lending laws when the home appraiser allegedly prepared a reduced valuation of their home, and when the lender denied their mortgage refinancing application based on that appraisal. Notably, the MBA’s brief focuses on responding to the Department of Justice (DOJ) and the Consumer Financial Protection Bureau’s (CFPB) joint “Statement of Interest,” which was previously filed in the litigation addressing the application and correlation of the Fair Housing Act and Equal Credit Opportunity Act to lenders relying on discriminatory home appraisals. Commenting on its April 2023 court filing, MBA President and CEO Robert D. Broeksmit stated, “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” (Connolly v. Lanham, D. Md., Case No.1:22-cv-02048-SAG).

Backdrop. The two homeowners sought to refinance their home in Baltimore, Maryland. According to the homeowners, the real estate appraiser significantly undervalued their home because they are Black, and when they told loanDepot.com that the appraisal was discriminatory, the mortgage lender still denied their mortgage refinancing application. Moreover, when the homeowners then had their home evaluated by a different appraiser, replacing their family photos with photos borrowed from white friends and colleagues and enlisting a white colleague to pose as the homeowner, the appraisal resulted in a valuation almost 60 percent higher than the original home appraisal, they assert.

In March 2023, the DOJ and CFPB took an interest in the case and filed a joint “Statement of Interest” to help explain the application and correlation of the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA) concerning lenders relying on discriminatory home appraisals (see Banking and Finance Law Daily, March 14, 2023). In contrast, the MBA’s April 2023 court filing, presenting its amicus brief for the court’s consideration, opposes the DOJ’s and CFPB’s analysis of how the FHA and ECOA operate in the case. As articulated by Broeksmit, “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.”

Amicus brief. In its amicus curiae brief filed with the federal district court in Maryland for the judge’s consideration, the MBA voices several core arguments. For instance, the MBA maintains that, in their “Statement of Interest,” the two federal agencies “mischaracterize the standard for liability over third parties under the FHA and the ECOA.” From the MBA’s vantage point, a lender is not liable under the ECOA “for the acts of an independent, third-party non-creditor,” and is subject to liability under the FHA “for the acts of a third party only in limited, prescribed cases.”

Further, the MBA asserts that the DOJ and CFPB “improperly assume that, under the FHA, lenders are expected to know or should know of discrimination by an independent, third-party appraiser.” From the MBA’s perspective, the federal agencies are seeking to “hold lenders liable for third parties under a disparate treatment theory by applying an incongruous negligence standard.”

In conclusion, the MBA “respectfully requests that the Court recognize the lack of liability on the part of loanDepot for the alleged actions of the appraiser.”

Attorneys: Brian D. Frey, Nanci L. Weissgold, and Melissa S. Malpass (Alston & Bird LLP) as amicus curiae Mortgage Bankers Association.

Companies: loanDepot.com LLC; Mortgage Bankers Association; 20/20 Valuations, LLC

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