CFPB Investigations in Alleged Appraisal Discrimination

Peter Christensen

CFPB Investigations in Alleged Appraisal Discrimination. The Consumer Financial Protection Bureau (CFPB) has started investigating alleged appraisal discrimination. This is a new development, as federal investigations had so far exclusively been by HUD. The CFPB is an aggressive investigator, and AMCs, large firms and lenders should be wary.

For the last year, 40% of my legal work has been occupied by issues concerning alleged discrimination – balanced between representing parties in fair housing investigations and helping clients improve compliance and decrease risk. It’s the CFPB that makes me most anxious for clients in the future. I addressed some of the details of what I’m seeing in the most recent issue of the Appraisal Institute’s Valuation magazine. Here’s a snippet: “in a recent investigatory demand, the CFPB demanded that an appraiser produce more than five years of appraisal reports and work files — comprising more than 35,000 separate documents and more than 100,000 pages.” In all, we produced about 150 gigabytes of data.

My impression is that the CFPB will be using such initial “small” investigations to work its way up the food chain – AMCs, larger firms and lenders may be at the beginning of some serious pain to be inflicted by the CFPB.

Excerpt from Fair housing and discrimination | Valuation – Q2 2022 – page 12
The issue continues to make news, but are large numbers of appraisers being sued for alleged bias?

Despite the many complaints, little action has occurred, and only one resolution of a HUD case was publicly reported recently: In March 2021, HUD approved a conciliation agreement between a Black homeowner and JP Morgan Chase Bank resolving allegations regarding racial bias in the valuation of the person’s home. The bank agreed to pay the homeowner $50,000 and to revamp its reconsideration of value process and training on fair lending issues related to appraisals. Aside from that, few HUD complaints have been resolved between appraisers and the complaining parties. HUD itself has not yet concluded any of its investigations with a formal charge of discrimination…

Peter Christensen

Peter Christensen

Peter Christensen is an attorney, licensed in California and Washington. His legal practice primarily serves the real estate valuation community - Valuation Legal. He's the author of Risk Management for Real Estate Appraisers and Appraisal Firms, published by the Appraisal Institute.

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25 Responses

  1. Avatar Pat Turner says:

    Insightful as always Peter. Thanks for being there for us.

    Have any courts demanded to see the alleged appraisals? As you realize, the AMC business model to rush to the bottom may bite just whom you identified!

    Thanks
    Stay well

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  2. Avatar Rafael Ramirez says:

    What about appraisal boards that discriminate against Black and Brown appraisers? Where do they go for relief?

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  3. Avatar Seneca says:

    AMCs? How in the heck does an AMC discriminate? All they do is send Emails, XML & PDF files from one computer to the next. Although, I’d love to see Class Valuation get drilled.

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    • Baggins Baggins says:

      For starters, the amc purposefully excludes appraisers from working opportunities with the amc’s unethical non separated billing practice which is in violation of the uspap ‘management rule’. “One shall not provide a thing of value to be the preferred selectee”, or something to that regard. Yet, the more the appraiser discounts, as cost savings from reduced service costs are not returned to borrowing consumers, the greater the financial incentive of the amc to assign that appraiser more orders ahead of other appraiser vendors.

      So to the appraisers soon to be investigated or already being investigated; still think programs like alamode comp sharing, data master, third party inspectors, report typing services, hybrids and desktops are a good idea? Limiting conditions and extra ordinary assumptions won’t save you from the CFPB. If you ran that through an amc, double your liability exposure factor right off the top. Keep up with that volume, it helps keep the scrutiny away from honest detailed manually oriented task appraisers whom refuse outsourcing, refuse hybrids, and refuse amc’s. I’m not worried about biased investigations, because I guarantee all work was completed myself personally, no help, no report typing services, no third party help, no inspection help or data gathering runners, and completed to my best of ability ethically compliant report development methods. A competent reliable appraisal report completed for $50-$100 dollars in a mere hour is a pure illusion, it can’t be done.

      My vote is for EO insurers to charge appraisers whom complete volume based hybrid appraisals a higher rate, and tag on an additional rider for additional cost if they’ve also bought into the amc illusion. Those qualification questions for insurability and cost should start including more narrow ranges for total number of reports completed, and additional questions about outsourced service support. That’s where the risk is at. One size fits all umbrella policies were for the old appraisal model, which is no longer the status quo. imho.

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      • Avatar MX says:

        Great post, thank you!

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      • Avatar Seneca says:

        Nice long post about AMCs that we already know about, but it doesn’t answer the question. The question was more from a logical point of why should the AMCs “be wary” when they have no say who gets a loan or what the house should appraise for.

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        • Baggins Baggins says:

          Follow the money. Obvious targets for financial litigation come first. Should one suppose that amc’s do not advocate for lenders interests first and foremost? The whole unbiased safeguard thing with amc’s fell flat from the start. Hence commentary such as; instead of losing one lender client, if an appraiser upsets someone at an amc, lose all the lender clients at once. Amc’s, the long arm of the lender. Amc’s may very well fall into this investigation realm not by purposeful action, but rather by consistent and predictable discounted services preference. Who’s better equipped to withstand accusations of this matter based on necessary attention to detail; The appraiser whom completes 4+ a day with all sorts of ancillary services, or the appraiser whom completes two or three a week and refuses the performance reduction pressures? One feels bad for appraisers whom used typing services where such language may have been systemically present.

          This is the point, the amc volume based model itself causes more risk and harm than good, they will naturally and for financial reasons, be on the front line of mass investigation events. Stack on separation from loan production rules which created the need for unnecessary third party amc companies in the first place. Nobody knew the exact details but we knew, one day…

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          • Avatar Seneca says:

            Not hard for the AMC to show they have no knowledge of an appraiser being racist or even know that the borrower is a minority. It would be like suing Angie’s List because the contractor was racist. I doubt they are worried.

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          • Avatar Pat Turner says:

            Baggins, my point exactly!

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        • Avatar Pat Turner says:

          They are DIRECTLY responsible for not hiring the appraisers knowledgeable in the subjects market area. Whenever there is a class action suit the AMCs might be a major target.

          Doesn’t everyone believe selection is strictly about fee. Every AMC knows who’s who in the areas they cover.

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      • Avatar Pat Turner says:

        If E & O insurers were savvy THEY would be investigating the AMC that is on social media bragging about appraisals being done in 24 hours or less and even identifying the location of said “appraisal”!

        Their mutual admiration society is flat out hysterical.

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        • Baggins Baggins says:

          This is another consequence of the appraisal management industries propaganda and the failure of the Appraisal Foundation to counter the nonsense. The steady stream of propaganda and self serving advocacy from these institutions has people actually believing appraisers can exist with extreme discounts, that we are actually going to be willing to be the sitting duck and complete hybrids. We’re about to lose another 50,000 appraisers if companies like Radius and all the ridiculous amc’s continue to purposefully suppress appraisal service fees and duties and too few appraisers resist.

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  4. Avatar MX says:

    Thank you Peter for keeping us informed. It is appreciated.

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  5. Thanks for the information. I did FOIA requests to HUD for all their appraisal discrimination investigations. They keep saying the investigations aren’t 100% complete. They refuse to give me any information stating that complainant must sign and notarize a document stating they allow their information to be given to me in the FOIA request.They must include their date of birth and nation of origin in that notarized document. Obviously no one will sign that. A lawsuit may be the only way to get HUD to comply with FOIA.

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    • Baggins Baggins says:

      That is an interesting turn of events. FOIA is not by permission or consent, it’s a requirement for transparency. Individual bureaucrats don’t make FOIA rules or get to decide what FOIA standards apply. HUD Is not above the requirement, even if they’re rather new to dealing with a specific line of requests. Not sure if these are helpful to your cause, but the issues of slow walking requests you speak of are rather common place, and predictable. Key search terms; stalling out FOIA requests, HUD. Or similar. FOIA is a specialty to itself, so to say the least; it’s complicated. If they’re slow walking you, research the details if that’s even allowable activity. Counsel may be helpful. Is there even a limit to how many requests you can file and where? I’m not even sure where to begin with that but thank you for at least trying. I’m just kicking you out a few random links here, not sure if they’re really helpful though. With so many departments to send FOIA requests too within HUD, surely there must be more than one contact and request location option.
      https://foiaproject.org/about/
      https://www.justice.gov/oip/foia-update
      https://www.justice.gov/oip/doj-guide-freedom-information-act-0
      https://www.hud.gov/sites/dfiles/CFO/documents/2023_HUD_Congressional_JustificationsFINAL_electronic_version.pdf
      (Control +F to call up the pdf term search tool.) FOIA:
      “The Office of Administration intends to combine the Freedom of Information Act (FOIA) and the Privacy Divisions with the Office of Digital Enterprise. The name of the newly formed organization will be the Office of Government Information Management. Additionally, a new office named the Office of Administrative Services is proposed in 2022. This Office would include the Administrative Officer and support staff.”

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    • Avatar Pat Turner says:

      Hmmmmmm

      Strange isn’t it!

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  6. Avatar Jim says:

    All of this skirts around the real issue. It has little to do with appraiser bias. In fact they are really encouraging appraiser bias. They ought to come out and say what they are really looking for. They want us to go out of the neighborhood based on skin color.

    The appraiser mentioned in this article was accused of bias because she used comparables in the subject’s neighborhood. The second appraiser used comparables in another neighborhood. Because that appraiser came in higher it is considered correct. It sounds to me that the lady appraiser approached this assignment using sound principles, but that is not what the regulators want.

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CFPB Investigations in Alleged Appraisal Discrimination

by Peter Christensen time to read: 1 min
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