Role Of Lenders In Appraisal Discrimination Under Scrutiny In Rocket Mortgage Cases

By KIMBERLEY HAAS
Officials at the U.S. Department of Justice continue to assert that Rocket Mortgage participated in housing discrimination by relying on a biased appraisal as the lender pushes the government to address potential conflicts between regulations and enforcement actions.
In December, lawyers for Rocket moved to dismiss a DOJ lawsuit alleging that the lender, an appraisal management company, and an appraiser harmed a Black woman in Denver who was seeking to refinance her duplex.
The woman is a customer of Rocket. Her home was appraised at $750,000 in 2018 and $860,000 in 2020. The appraisal in question was performed in 2021 and came in at $640,000.
Officials say that when the homeowner complained to Rocket, they would only proceed with her refinance loan application based on the appraised value she claims was discriminatory.
The lawsuit followed a charge by officials at the U.S. Department of Housing and Urban Development based on the same set of facts.
In addition to moving to dismiss the DOJ lawsuit, Rocket sued HUD in December.
Bill Emerson, president of Rocket Companies, said at the time that lenders are required to be at arm’s length during the appraisal process.
“We did what we could do in this particular transaction. We contacted a third-party appraisal management company. They hired a state-certified and licensed appraiser. That appraiser did the appraisal and the value came back the way that the value came back,” Emerson said.
Emerson said the client had every right to question the appraisal, but they couldn’t intervene in the process.
“What we’re allowed to do by law is to give her the opportunity for a value reconsideration which allows her to provide to the appraiser additional comps or other things that might be able to address the questions she had about the appraisal, which we offered her twice and she chose not to take,” Emerson said.
Emerson said all members of the lending industry can benefit from clarification on HUD regulations. He also said it is unreasonable for DOJ officials to sue Rocket for the conduct of an independent appraiser.
“It’s clearly a government overreach and it’s clearly a ploy to continue to extract money from the lending community,” Emerson told The Mortgage Note.
On Jan. 9, the Justice Department responded to Rocket’s motion to dismiss.
Attorneys for the department said the Fair Housing Act makes it unlawful to discriminate because of race in the terms and conditions of residential real estate-related transactions. Under the FHA a lender cannot use an appraisal it knows, or should reasonably know, is discriminatory, they said.
“The complaint alleges that Rocket did just that by relying on an appraisal it knew was likely discriminatory. Numerous courts have held that such conduct violates the FHA,” the attorneys wrote.
“Rocket does not cite this case law or the regulation. Instead, it argues that a statute and regulation concerning appraisal independence stripped Rocket of the power to do anything about the discriminatory appraisal. The plain language of the statute and regulation, however, refute Rocket’s assertion.”
They said lenders can ask an appraiser to consider additional information or correct errors, and they can order a second appraisal.
“Contrary to Rocket’s contention, it cannot escape liability merely because another party was the one who initially acted with discriminatory intent,” the attorneys wrote.
Rocket Mortgage has issued a statement on the DOJ response.
“We categorically disagree with the government’s response to Rocket Mortgage’s motion to dismiss the company from the DOJ’s claims. The facts are clear – as a lender, Rocket Mortgage must remain independent from the appraisal process. Rocket Mortgage offered our client a path to challenge the appraisal through a value reconsideration process which complies with the law, but she declined to engage in that process on two separate occasions. This is exactly why Rocket Mortgage filed suit against the Department of Housing and Urban Development, to correct the conflicts between the government’s regulations requiring appraiser independence and its enforcement actions seeking to hold lenders liable for the conduct of independent licensed appraisers,” the statement said.
On Dec. 20, Judge Robert Blackburn issued an order directing the parties to confer and prepare a proposed joint case management plan in the HUD case. The plan should include a road map for prioritizing and addressing procedural issues as well as a briefing schedule.