A wide-ranging investigation of five mortgage lenders and other real estate professionals suspected of bias in lending has led to draft legislation that would prohibit appraisers from discrimination, state officials said.
The state Division of Human Rights is leading the investigation. It has taken aim at appraisers, who have been blamed for aggravating the foreclosure crisis by colluding with lenders and brokers to inflate property values to levels that homeowners could not afford.
A bill drafted by the agency and introduced last month in the state Senate adds appraisers to a list of real estate professionals who are prohibited from discrimination based on race, disability, age or other factors included in the state’s Human Rights Law.
“Those who work together in a conspiracy to peddle predatory products in the state of New York will be held liable for their conduct,” said Tom Shanahan, deputy commissioner for external affairs at the Division of Human Rights.
Shanahan would not identify the lenders or provide additional details on the ongoing investigation, but said it involved “all aspects of predatory lending.”
In March, state Attorney General Andrew Cuomo cited the close relationship between appraisers and lenders as a cause of inflated loans that later led homeowners to slip into default. Cuomo then struck a deal with Fannie Mae and Freddie Mac, forcing the government-backed financiers to buy mortgages only from lenders who used independent appraisers.
The proposed bill, which carries civil but not criminal penalties, was introduced April 24 by western New York Senator George Winner, the Republican chairman of the committee which will consider the bill.
A companion bill was expected to be introduced in the Assembly, Shanahan said.
The division operates an administrative court which can levy fines and order changes to business practices, he said. A company can appeal to The County State Supreme Court if it objects to the findings.
Joel Leitner, president of the Metropolitan New York Chapter of the Appraisal Institute, said his members must follow an ethical standard that prevents discrimination. He said he was unaware of any cases of abuse among his members.
“If the bill gets bad-acting appraisers off the streets, then it is a good thing,” he said. But he added he “really never heard of predatory appraisers.
However, if there are appraisers out there that are not doing the right thing, then the bill is a good idea and we should support it.”
Real estate appraiser Daniel Houlihan, president of Houlihan & O’Malley Real Estate Services, Inc., said that he did not oppose the bill, but challenged the idea that appraisers made biased valuations.
“The notion that appraisers pick people of color or the handicapped to discriminate against is ludicrous,” he said.