Mortgage News March 28, 2023
The U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB) recently issued a joint statement of interest in a pending lawsuit that could have significant implications for the mortgage lending industry. The statement clarifies how the Fair Housing Act (FHA) and the Equal Credit Opportunity Act (ECOA) apply to lenders who rely on discriminatory home appraisals.
The lawsuit in question, Connolly, et al. v. Lanham, et al., was filed by Nathan Connolly and Shani Motta against mortgage lender LoanDepot and appraisal company 20/20 Valuations in May 2021. The couple alleges that their home was undervalued by appraiser Shane Lanham due to their race and the home’s proximity to a Black census block. The lower appraisal led to LoanDepot denying their mortgage refinancing application, which the couple claims was a violation of the FHA and ECOA.
The CFPB’s statement clarifies that mortgage lenders can be held liable for relying on discriminatory appraisals. It also highlights the harmful effects of appraisal bias, which can perpetuate the racial wealth gap and deny communities of color the benefits of homeownership. The DOJ’s Civil Rights Division is working to ensure that the housing market is open and fair by addressing various forms of discrimination, including appraisal bias and discriminatory loan pricing practices.
The Connolly case is one of several recent lawsuits that have brought attention to the issue of appraisal bias. Home appraisals play a critical role in determining the value of a property and, in turn, the terms of a mortgage loan. If appraisers undervalue homes based on factors such as the race of the homeowners or the racial makeup of the neighborhood, it can lead to higher interest rates, smaller loans, or even loan denials.
The CFPB and DOJ’s joint statement sends a clear message to lenders and appraisers that discriminatory practices will not be tolerated in the mortgage lending industry. It also serves as a reminder to consumers that they have legal recourse if they believe they have been the victim of discrimination in the home-buying process.
As the Connolly case and others like it continue to make their way through the courts, it is possible that we may see changes in how home appraisals are conducted and how lenders evaluate loan applications. Ultimately, the goal is to create a more equitable housing market that provides opportunities for homeownership to all Americans, regardless of race or ethnicity.
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