Racial Targeting Under the Heading of Diversity, Equity & Inclusion
This time around, the racial targeting is masked as a virtue under the heading “Diversity, Equity and Inclusion,” or “DEI.”
Valuation Jiu-Jitsu Will Lead to Future Addie Polks
Addie Polk was a 91-year-old African-American widow who shot herself in the chest in 2008 during a Fannie Mae-initiated eviction in Akron, Ohio. It marked the low point in Fannie’s embrace of toxic mortgages. Fannie, now in federal conservatorship, bought or guaranteed subprime loans made to vulnerable borrowers in the years leading up to the 2007-2008 financial crisis. There are now signs of new abuses. Under the banner “equity and inclusion,” some nonbank lenders, again enabled by Freddie and Fannie, seem to be targeting Black borrowers in schemes based on inflated appraisals – one of the few tools still available to fraudsters.
In Polk’s case, a fraudulent mortgage was originated in the widow’s name through an affinity scam in which commissioned salespeople for the now-defunct Countrywide Home Loans infiltrated her largely African-American Baptist church. It is believed bad actors, after taking volunteer positions at the church, copied her signature from donation checks or otherwise gained her trust. The subsequent mortgages and lines of credit taken out in her name devoured the equity in the nonagenarian’s home, which she had owned free and clear.
Polk became the national face of predatory lending as she lay dying of self-inflicted gunshot wounds in the Akron General Medical Center. When Polk’s story went global, Fannie quickly announced it would halt its eviction of the dying elderly widow and forgive her debt. Magnanimous. Her story was retold in the 2020 docuseries “The Con” by filmmakers Eric Vaughan and Patrick Lovell.
Polk’s case came to symbolize the way in which lenders, particularly the nonbank lenders – egged on by Fannie and Freddie – targeted African-Americans for subprime loans.
In their book “Predatory Lending and the Destruction of the African-American Dream,” wrote law professors Janis Pearl Sarra and Cheryl Wade:
“Millions of middle-class and high-income African-Americans who qualified for regular fixed-rate, long-term mortgages were steered to subprime mortgages. For the most part, white American borrowers who had credit histories identical to the credit histories of African-American borrowers were not targeted for subprime mortgages.”
Fast-forward to 2022. There are new signs commissioned salespeople have descended on equity-rich but cash-poor neighborhoods, using affinity schemes to assist Black homeowners in depleting home equity or shoveling equity into credit card debt traps with frequent refinancings. But this time around, the racial targeting is masked as a virtue under the heading “Diversity, Equity and Inclusion,” or “DEI.”
In 2020, the Greenlining Institute, an Oakland, California-based nonprofit, reported that the eight largest nonbank mortgage lenders in the state had lent disproportionately to Black and Hispanic home buyers when compared with chartered banks in the state. That suggests racial targeting.
Meanwhile, bank appraisers are being pressured by Freddie and Fannie to compensate for years of supposed bias. Permeated by politics and unholy alliances with the Realtors, home builders and lenders, the mortgage giants have even taken steps over the years to keep appraisers from viewing the properties they’re asked to appraise. “Nothing to see here.”
New attention is being paid to properties that don’t appraise to what commissioned salespeople want the properties to be worth to make their deals work. Appraisers are also being pressured even by their state licensing boards to play ball, to abandon established analytical principles and become warriors on the front line of social justice – or else.
National appraiser organizations that once pioneered analytical techniques like discounted cash-flow models and regression analysis have been recently flogging webinars by an organization called ACTION, which calls for “restorative appraisals” in which appraisers are taught to use comparable sales from so-called “white neighborhoods” when appraising homes in what are identified as “Black neighborhoods.” Using comparables from distant neighborhoods is how a dishonest Ohio appraiser, working with Countrywide, was able to appraise Polk’s home for reportedly twice the home’s market value. With the implicit full faith and credit of the U.S. government, Fannie Mae then guaranteed Polk’s loan based on the inflated appraisal. This led to Fannie’s eviction of the elderly widow.
The large financial institutions have been armoring up to repel the next public relations disaster like the Addie Polk case or the next Justice Department civil rights investigation.
They’ve been hiring high-profile diversity, equity and inclusion figureheads as protective camouflage. It will help them to flip the script when future affinity scams, like the one that destroyed Addie Polk, are discovered. No longer allowed to openly push negatively amortizing loans – so-called pick-a-pay loans – and Alt-A loans, they’ve made inflated appraisals the new big thing in an effort to sell loans to African-Americans. The nonbank lenders may be able to keep the party going by pushing for inflated collateral values under the guise of equity and inclusion.
To appraisers, it looks like regulators have lost their marbles. Before Ameriquest’s spectacular collapse in 2006, the U.S. Justice Department’s Civil Rights Division had brought a case against the now-defunct subprime lender for padding mortgages made to minorities, women and the elderly, and for engaging in bait-and-switch tactics. Countrywide was also in government crosshairs for targeting Black and Hispanic Americans, along with the elderly. This would have been no surprise to Addie Polk. After the crisis, the Justice Department levied big fines against its new owner, Bank of America, over 10,000 toxic subprime mortgages. The now-bankrupt New Century was also linked to predatory lending.
People of goodwill should remember the story of Addie Polk. She deserves to be remembered.
I attended a webinar yesterday regarding this topic titled, “Emerging Topics in Appraisal Bias”. The groups responsible for developing the material include the ASA, AI, ASFMRA, IAAO, MBREA & NSREA. Here is one of the pages from the presentation that suggested a way of “rethinking” how appraisers should conduct their comparable search. I have concerns with appraisers being asked to “Restore Value to Structurally Underserved Areas”, when there are so many other players in the game that are directly responsible for the current situation.
Unreal. LOCATION, LOCATION, LOCATION; I guess is no longer the gold standard. We cannot hold the minority areas under water any longer. We must restore value to those areas by means of FRAUD! No thanks. I just talked about this very thing on a Radio show this past weekend and the host said” ” You mean compare a home in an area with inferior schools, transportions, streets, condition of the neighborhood, with superior location homes and make them all equal in value in essence?” I said yes, that is about the size of it. He said that is the craziest thing he had ever heard and the Host is A Realtor. I said THANK YOU, It surely is crazy!
Instead of “Restore Value” it should be called “Create Equity”
so the home owners can take out 2nd mortgages & HELOC loans. When the money is gone it’s gone, then what ?
Then the bank recalls the note and owns the property at the first moment of owner financial distress. They write off losses on both sides, recall and resale. The net result is profit.
Simply said, madness. Everyone in Government and lending is so afraid of being labeled a racist they are promoting fraudulent appraisals…or else. How is this justified??? Geez, who would have thought all the bad apple appraisers out here would be vindicated. Wouldn’t be surprised if they all get let out of jail, re-licensed with an apology, compensated for jail time and return of the fines they had to pay. This insistence in reinventing the housing market is going to make the subprime collapse look like Disney World. On another note, Realtors will need to re-label their mantra of “location, location, location”.
Same old game under a different name. A scam is a scam is a scam!
Great article Mr. Baggott
It reminds me of the Austin v Miller lawsuit over the appraisal of a black owned home in Marin City, California. The second appraiser used comps in Mill Valley which sell for twice as much as Marin City. Mill Valley is mainly white. Marin City is mainly black. This caused the homeowner to think the first appraisal was too low when it was actually market value. That is why the first white appraiser was sued. Litigation is ongoing. https://mary–cummins.blogspot.com/2021/02/alleged-discrimination-home-appraisal.html
I know that case well and believe it or not the judge wanted to move this forward because the first appraiser used comps in the same development, further depressing the already depressed area, therefore applying bias. If this case is not won by the Appraiser, we all may as well move on to another profession.
And that my friend is the whole idea behind the madness. In todays society we are viewed as an evil necessity. Everything else has not been successful to date and given time they have figured out how to get appraisers to leave…voluntarily…attack their integrity and call them racist.
Research has shown that blacks, Latinos, women and elderly are also steered into more expensive auto leasing and financing in general. I’ve had to look over friends home and auto papers to check for junk fees and rates that make no sense based on credit, LTV, debt… Lenders will charge more if they can. Mortgage brokers make much more money putting someone in a subprime loan than conventional. Horrible situation.
The King Cobra is alive and well. And so is Gubment stoopidity of “unintended consequences”. Thanks Maxine… for nothin.
Should I now do the same if the owner wants to dispute his taxes, should I use sales from more expensive markets to inflate the value? Which will increase his taxes. Or, in this case will he want me to use comps from the area. If a property owner wants me to do an appraisal for a prelisting and they cannot sell the property because of the inflated value, will he now file a complaint with the state. Because I over valued the property. Thay can’t have it both ways, or can they?
Just do away with the appraisers already, let the property owner pick a number, the lenders can do the loan and the taxpayers can cover it when the market crashes. Just like the last two time.
Right on! Cannot have it both ways. I love the tax appeal analogy! Any way you look at it we will be the fall guy. If lenders want valuation restoration then they need to sign a hold harmless agreement for every Appraiser. No way I am doing anything like this restoration idea. It is fraud!
Let the lenders underwriters determine if the loan qualifies. They can sign their own work. We could complete a market value report with no value stated. The underwriters could state the value and state their value based on the data that was supplied.
Close. No cigar. The model you describe almost exactly matches the new hybrid report remote inspection approach. No adjustments, and in only some cases, no value, but normally there is value which the appraiser supposedly deflects liability based on extra ordinary assumptions, etc. Just one problem, it’s all attached to the appraisers individual EO insurance. On the other side of the coin, the appraiser is an essential check to balance because when given the leeway, as we observed in the massive market melt down circa 2006-2012, employees seeking commissions and other financial gains, or being subjected to pressures to produce, can and will take advantage then duck out on individual culpability. So yeah, the appraisal remains as a necessary and worthwhile independent check to balance. Those seeking to diminish this important safeguard are running a fools errand. The plain fact is if the lender wants, there are already a thousand and one ways to circumvent the appraisal requirement. We don’t need hybrids and they solve absolutely none of the real world problems we all deal with regarding mortgage lending. Abandoning the perceptual need for the independent appraisers service is even worse.
And just like that… real estate appraisers from across the country have now added a new line item to their resumes, websites and marketing material.. RESTORATION VALUE MAGICIAN. Oh wait, haven’t some AMCS and others already claimed to be such magicians when it comes to this topic? The pandering and save face attitudes of some of these organizations is concerning.
Instead of looking at the big picture of infrastructures, the neighborhoods, the cities and more to determine what sort of things that can help these areas, they want to blame the appraisers.
Here is a thought… how about you investigate where those tax dollars are going and what’s being done to make these areas better compared to other areas? Maybe investigate and really do a study on the effects of past redlining initiatives by the government, states, lenders and how their actions in the past have have caused this issue today. How about you investigate and do a study on WHY these areas are of lesser value than an area further away? Oh my bad. That would be too much hassle and expose the Real truths that may go against the political system.
Shame that these organizations are more focused on reputation than actually explaining the facts and educating others. What’s next?? These organizations sell more courses on restoration values? Maybe a new USPAP section on how to be compliant in restoration values? Fannie Mae gets in on it and creates a new restoration value section?
I can see the AMC BIDS NOW.. We need an as is, as repaired and a restoration value for $350.00
How about this… how about you RESTORE the appraisal profession back to what it was prior to the crash and allow appraisers to do what they do best without more laws, regulations and 3rd parties. Oh and an added note.. here is one last suggestion … instead of talking to organizations that only care about themselves and saving face… maybe just maybe you start including the actual independent appraisers that serve these areas on a daily basis.
Amen have been saying this is quite simple. Ask buyers and their Realtors WHY are they paying less in certain neighborhoods. Fix those issues And values will rise period!
Mr New Level. Great post. Be sure to read this important report, and save the document for your records.
AEI American Enterprise Institute, Tobias Peter report; Faulty evidence and misdiagnosed solutions.
This report was also related from the same group.
Regarding the amc reference; “We warned you these were possibilities, if the amc industry was allowed to represent the valuation industry.” Amc’s are not value specialists, they are document mules and unnecessary third party data relay intermediaries. These companies should absolutely never be on state boards, never be allowed to represent guide or steer the valuation industries, amc’s should absolutely never be considered trusted entities to advise or consult for the financial services committee or anyone else. Shame belongs with every appraiser, appraisal organization, and lender which continues to promote, support, and work for these amc companies, unnecessarily perpetuating their existence, and their predatory influence.
Where did the money go? A noble cause but at a scale this large, an impossible task. Which is why I constantly promote a better alternative to blighted area restoration which actually is good for residents, not harmful to residents, is low priced, and does not enrich global corporations or these race baiting hucksters like Andre Perry and the Brookings institute. OMG, posting this again, but I suppose it’s worthwhile because for real, these programs work, are effective, can be implemented locally, and truly do help people in these areas. I live near where they implemented these programs and it’s a night a day difference. The programs work, bring legitimate value gains, legitimate amenity help, legitimate reductions in blight factors which lead to lower property valuations. Keyword; Urban Renewal Programs. Will everyone please take the time to watch this video at least once. Thank you.
Most of the racial prejudice comes from the lenders, not the appraisers. I have asked more than one to explain artist pictures on sheets, they were not John Wayne. Zip codes are still targets. Texas banks are the worst (any of them). ARC 35 years appraising. It’s hard to believe any appraiser is targeting any group of people no matter where they live.
Presidential Candidate Joe Biden, when campaigning for President, told us (appraisers) what he would do, if elected. This is about keeping a campaign promise.
HUD Secretary Marcia Fudge was appointed and is following his expectations, along with Maxine Waters, chair of House Finance Committee.
Their expert advisors include Dr Andre Perry, Brookings Institution and others with similar unfounded Biases against appraisers.
Following the 2008 financial meltdown, appraisers were accused of over-appraising properties in minority neighborhoods.
Now, appraisers are accused of under-appraising properties in minority neighborhoods. So, there’s a push to over-appraise properties – this will actually strip away equity, using false valuations, and will again lead to an increase in foreclosures
Indeed Mr Gilbert, an accurate and simple summary of the matter. These people are clearly incompetent. It is the mechanism of funding and fund raising which is at the root of the particular problem of influence which leads to counter productive legislation, aka; poisonous protectionism. These special interest groups fund a cause, promote the cause through their corporate media outlets, drum up public support, drum up grant monies, unlimited no cap tax subsidies, and the broken record skips on with an apparent never ending stream of public support. They write off their expenses and profit a kings share at the expense of everyone else. Corporations using government mechanisms to tax the people directly with no actual public benefit in the long run.
Which is why we have studiously adopted a new way of thinking and seek to educate others on these matters. Economic and governmental management principals which are actually quite old fashioned but still relevant today. aka; recognizing austrian economics and the true purpose of government being limited to protecting liberties. Regardless if it’s war around the world, government over reach, lending issues, flailing property rights, liberty issues, everything traces back to an improperly managed failed implementation of central planning and fiat monetary management. If these people did not have their hands in the taxpayers pockets, the ability to expand the money supply itself with quantitative easing programs which are merely another more nefarious form of taxation, none of this would be possible in the first place. There could be no incentives, no market manipulation, nor the long train of abuses which inevitably follow. Thank you.
Well Mr Bagott, I had not expected to actually shed a few tears at my desk this morning, but that is indeed what happened. I read your article completely, and every single link provided. You’re really a champion for consumer protection causes and we continue to be most appreciative of your efforts and masterful ability to relay such complex arguments to a broad audience.
Things were not supposed to end this way, not again. So many of us worked diligently for the past decades to promote better more responsible lender and consumer engagement. Appraisers around this country made untold personal sacrifices in an effort to correct what was clearly runaway lending, which sadly is simply re emerging. All the while appraisers continued to be victims of predatory engagements for the past decade with no end in sight.
Now lenders and special interest partners are back with another iteration of the predatory approach, fleecing American consumers, boldly promoting dangerous and irrational lending practices. Backed by new players, with the same old predatory intentions and misguided principals.
Rosalinda Williams. Whom proposed the ‘restorative appraisals’ concept.
Any Missouri appraisers whom could provide meaningful commentary on these matters?
Rosy’s quite impressive and lengthy list of professional activities. She knows about urban renewal and TIF programs so why would she propose such destructive policy concepts as ‘restorative appraisals’?
Appraisers are a check to the balance and are not a tool which can be used for special interest purposes. Think of us as independent market valuation auditors because if you perceived our position as anything else, that is mistaken.
Appraisers too find deep appreciation for when urban renewal projects are successful. It makes our jobs easier and we rejoice in seeing people doing better and able to successfully achieve better long term financial stability on the path to complete home ownership. The appraisal valuation tool must be a measurement of success or failure from others. Appraisers read the market we do not set the market.
The honest unbiased appraisal market valuation measurement and subsequent value position reporting can not and should not be manipulated or used as a short cut to improving residents chances of success or improving their personal positions. The appraisal community and the valuation measurement mechanism is not a potential innovative funding resource or way to bypass red tape. It would be no different than financial accounting fraud to show a corporations growth to mislead investors. Appraisers must adhere to strictly localized property valuation analysis. Please, thank you.