Mortgage lenders can be held liable under federal law for relying upon discriminatory appraisals from third-party appraisers.

The U.S. Department of Justice (DOJ) has stated that mortgage lenders can be held liable under federal law for relying upon discriminatory appraisals from third-party appraisers. Earlier this year, the DOJ filed a statement of interest to the U.S. District Court of Maryland alleging that an appraiser and a lender violated the Fair Housing Act and the Equal Credit Opportunity Act by lowering the valuation of a home because the owners were Black. The mortgage was denied on the owners’ refinance application based on that appraisal. The home was later appraised for a higher amount when photos were replaced with pictures of white people.

A report by Freddie Mac, Racial and Ethnic Valuation Gaps in Home Purchase Appraisals, examined the outcomes for properties in Black and Latino census tracts versus those in White tracts, using 50% as a threshold to define minority tracts. The report stated that 12.5% of appraisals for home purchases in majority-Black neighborhoods and 15.4% majority-Latino neighborhoods result in a value below the contract price compared to 7.4% in predominantly White neighborhoods.