Nov/Dec 2023 RMM

Jim Brodsky Soroush Shahin Those are the background facts of what federal regulators say is an example of appraisal bias, according to a report from the U.S. Department of Justice (DOJ) and the Consumer Financial Protection Bureau (CFPB). More importantly for mortgage lenders, in March of this year, the DOJ filed an official “statement of interest” in the case, arguing that lenders are responsible for appraisals based on the Fair Housing Act (FHA) and Equal Credit Opportunity Act (ECOA). “A lender violates both the FHA and ECOA if it relies on an appraisal that it knows or should know to be discriminatory,” the DOJ says in its court filing. That interpretation is something all mortgage lenders must understand, say Jim Brodsky and Soroush Shahin, attorneys at the Washington, DC, law firm of Weiner Brodsky Kider PC, which counsels NRMLA and its members on legal matters. “This is a serious issue. It’s not a dormant matter—it’s a forefront matter,” Brodsky says. “And it needs to be treated as a forefront matter.” In recent interviews, Brodsky and Shahin outlined several steps lenders should take to help ensure they are protected from accusations of appraisal bias. Difficult Situations Regulations require that lenders remain independent from appraisers so lenders do not unduly influence the appraisal process—rules that regulators put in place after the mortgage crisis helped spark the Great Recession. However, those tensions do not mean that lenders can abdicate their responsibilities to ensure a fair process, Brodsky says. “The emerging law is that lenders have a responsibility, nonetheless, in this area,” Brodsky says. “Lenders have some responsibility when they know—or should have known—that discriminatory practices may be afoot, even though they generally are supposed to be hands off with respect to appraisal matters because of appraisal-independence requirements. They have a legal obligation to intervene.” Brodsky and Shahin recommend that lenders implement plans based on preliminary guidance the Biden administration released in June. The guidance is an outgrowth of work started two years earlier by the presidential interagency Property Appraisal and Valuation Equity Task Force to remove discrimination from the appraisal process. The task force has representatives from 13 federal agencies, including the DOJ, CFPB, the White House domestic policy adviser and secretary of the U.S. Department of Housing and Urban Development (HUD). Overt discrimination is clearly prohibited, but a flawed appraisal process can create unintentional discrimination. Regardless, lenders must create policies that demonstrate they have procedures in place if appraisal concerns arise, Brodsky and Shahin say. And they must do so now, even though the federal government is still developing final rules, Shahin adds. “You have a responsibility to act,” Brodsky says. “We are in an age where we are trying to root out discrimination, and you have duties here.” Embracing a Reconsideration of Value Lenders can be proactive by developing or improving policies that directly address one of the Biden administration’s primary goals: empowering consumers to challenge appraisal valuations. In its guidance, the administration says it is acting to “promote industrywide consistency for reconsideration of value (ROV) processes and increase consumers’ knowledge about the option to pursue an ROV.” Lenders need policies to handle ROVs—even if discrimination is not alleged but the value still is questioned—and then follow through with clear guidelines, documenting everything along the way, Shahin says. Appraisal Bias continued on page 30 REVERSE MORTGAGE / NOVEMBER–DECEMBER 2023 29