HUD’s Private Inquisitors Will Chill Protected Speech of Appraisers

In the early 1990s, the Texas Legislature established an unusual nonprofit known as the Boll Weevil Eradication Foundation. The times were dire. A near-biblical plague of weevils had descended on the state’s cotton crop. So, state lawmakers granted the private organization the powers of government to combat the malevolent creatures.

But the organization was soon hijacked by factions and their cronies. The nonprofit’s coercive powers were used for mischief and score-settling as farmers and organizations jockeyed for competitive advantage. The nonprofit could impose crippling penalties and it could enter private property without the owner’s permission and seize equipment and destroy crops. The foundation had its own funding source – it could levy assessments.

To no one’s surprise, the Texas Supreme Court made short work of the boll weevil eradicators in Texas Boll Weevil Eradication Foundation Inc v. Lewellen, but it took about five years of abuses. The justices found that volunteers and private entities – neither elected nor appointed – wielded great power over people’s lives and property but answered to virtually no one. The nonprofit was stripped of its government powers.

Recalling the boll weevil eradicators, the U.S. Department of Housing and Urban Development announced in March 2023 that it was awarding $54 million to 182 nonprofits to serve as posses in a Spanish Inquisition-style drive. The funding will have the effect of chilling the free speech of real property appraisers nationwide. It will cow them into playing ball, which is exactly the point. As hunters can be overheard saying on the first day of pronghorn season in parts of the Texas Panhandle, Plus ça change, plus c’est la même chose.

The agency announced it had made the awards to the groups under its Fair Housing Initiatives Program. The grants will pay the nonprofits to find violations of the Fair Housing Act by singling out hapless appraisers who may occasionally conclude heretical value opinions that cause sellers to have to renegotiate sale prices or that put broker commissions at risk or threaten a lender’s debt trap on a serial refinancer.

The deputizing of these private inquisitors is part of a multi-year campaign waged by the lobbies of the homebuilders, Realtors, banks, fintechs and nonbank lenders to weaken or eliminate appraisers in federally backed mortgages. These groups have hitched their wagon to the equity movement, and the campaign has been wildly successful.

A press release issued by the federal agency promises that the Enforcement Initiative grantees will continue fair housing enforcement efforts nationwide. These will inevitably come in the form of more character attacks on individual appraisers in the media and more nuisance lawsuits in which the deep pockets of the federal government will be used to help the nonprofits chill the protected First Amendment rights of appraisers to develop disinterested opinions of value of the properties they appraise. A state-by-state breakdown of the awardees can be found here.

Eligible activities for the funding include testing for appraisal bias – which may mean locating aggrieved sellers and brokers in transactions in which an appraised value has torpedoed a deal, paying for multiple appraisals of the same property and attacking the appraiser who happened to file the lowest value opinion. “Educating local communities on the issue” may simply mean getting the word out to potential plaintiffs that funding is available to sue local appraisers for their opinions of value.

In an August 2021 report, the U.S. Federal Reserve looked for signs of racial discrimination in mortgage approvals using new data. It found no signs of discrimination. To the contrary, it found black borrowers tended to hold more debt proportionate to their income than Hispanic borrowers, that Hispanic borrowers held proportionately more debt than white borrowers and that all three groups tended to be more leveraged with debt proportionate to income than Asian borrowers. This may be an indication that African-Americans are again being targeted by lenders in affinity schemes, not that they’re being denied credit.

In another report from 2021, mortgage giant Freddie Mac scoured 12 million appraisals between 2015 and 2020 and published a study that found the sales of homes in black- and Latino-majority census tracts were more likely to appraise below the negotiated sale price than sales of homes in white-majority tracts. The report ignored the likelihood that concessions and closing costs were being built into sales prices to a greater extent in these black and Latino tracts, which could contain a disproportionate number of first-time and cash-poor buyers being helped by sellers.

While appearing to reveal something sinister about the nation’s real property appraisers, buried in the report was the begrudging acknowledgment that the comparables selected by appraisers to value homes owned by people of various racial groups tended to be reconciled within ranges that differed little statistically.

Tucked into the report was the recognition, “Appraisals for properties in Black and Latino tracts tend to be slightly closer to the lower end of the [comparable] range.” But the report then conceded, “the average dollar impact is less than $500.”

An impact of $500 or less off the median U.S. home sales price of $428,700 around the time of the study represented a departure of about 0.1% or less. The amount fails to rise to even a rounding error. Analysts at the mortgage giant seemed to be grasping at straws to find something – anything – wrong with the appraisals but, as they conceded, couldn’t. Ultimately, the study found appraiser bias was a phantom issue.

But still peddling the canard has been HUD Secretary Marcia Fudge: “Far too many families in our country still face unconscionable prejudice, both as renters and homeowners,” she said. “The Fair Housing Initiatives Program puts money into communities to help them root out discrimination in housing. I am pleased to provide our state and local partners with the resources they need to combat inequity and build a fairer, more inclusive country for all.”