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Saturday, November 2, 2024

DOJ naming Rocket Mortgage in appraisal lawsuit ‘a flagrant example of government overreach,’ says company spokesman

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Rocket Mortgage FieldHouse in Cleveland. | Wikimedia Commons / Erik Drost

The Department of Justice (DOJ) has named Rocket Mortgage in a new lawsuit alleging racial discrimination in home appraisals, a claim that the company has called "a flagrant example of government overreach." 

The DOJ's lawsuit, filed against Rocket Mortgage, appraisal management company Solidifi, and appraiser Maksym Mykhailyna, alleges that the lender failed to take adequate steps to correct a discriminatory appraisal, according to government filings.

In response, a spokesman for Rocket Mortgage defended the company’s practices, emphasizing that federal law prohibits mortgage lenders from interfering in the appraisal process. 

"In filing this lawsuit, the DOJ has failed to present a single factual allegation against Rocket Mortgage, instead seeming to absurdly suggest that we should have ignored the appraisal and set our own value for the home — an action that would constitute an outright legal violation," the Rocket Mortgage spokesman said in a statement provided to Legal Newsline. "Federal regulations explicitly require that mortgage lenders remain at arm’s length in the appraisal process, hiring independent appraisal management companies that assign work to independent state-licensed professional appraisers. This structure is deliberately designed to prevent any influence from lenders on home valuations." 

Rocket Mortgage plans to file a motion to dismiss the lawsuit after completing the court-mandated meet-and-confer process.

At the center of the DOJ’s allegations is an appraisal conducted by Mykhailyna, arranged by Solidifi. According to the DOJ, Rocket Mortgage could have ordered a second appraisal or requested adjustments to the initial appraisal to address potential bias. 

The key allegation against Rocket Mortgage, according to page 41 of the complaint, reads: “To avoid relying on the discriminatory appraisal, Rocket could have ordered an appraisal of the Subject Property from a different appraiser. Rocket could also have attempted to remedy the discrimination through a variety of other means, including by requesting that Mr. Mykhailyna consider more appropriate comps and fix other errors in the Subject Appraisal. In fact, Rocket did request that Mr. Mykhailyna correct an error in the Subject Appraisal unrelated to Ms. Cheroutes’s complaint, and Mr. Mykhailyna corrected that error.”

The DOJ's filing cites regulations that allow lenders to request a reassessment if an appraisal contains errors or lacks sufficient comparable properties. 

Rocket Mortgage, however, argues that its compliance with federal regulations regarding appraiser independence makes the DOJ’s claim unfounded.

"The DOJ’s baseless inclusion of Rocket Mortgage in this suit appears to be little more than a calculated move to grab media headlines rather than pursue genuine justice,” Rocket Mortgage's spokesman said. "After fulfilling the court-mandated meet and confer process, we will be filing an immediate motion to dismiss this nonsensical case, which stands as a flagrant example of government overreach."

Rocket Mortgage contracted Solidifi to manage the appraisal process, consistent with federal guidelines under the Dodd-Frank Wall Street Reform and Consumer Protection Act. 

These guidelines require mortgage lenders to engage appraisal management companies (AMCs) as intermediaries to ensure that appraisers operate independently, reducing potential conflicts of interest. 

Solidifi, in turn, selected Mykhailyna, who is state-certified, to conduct the appraisal.

Here’s how mortgage lenders stay separate from the appraisers under the current process. 

Under federal regulations, mortgage lenders usually collaborate with Appraisal Management Companies (AMCs) to select qualified appraisers for property evaluations. 

AMCs ensure that the appraisers they hire are properly trained and certified to meet required standards. 

In the case involving Rocket Mortgage, the company partnered with an AMC named Solidifi, which has its own panel of trained appraisers. 

Solidifi assigned Mykhailyna to conduct the appraisal that is central to the Department of Justice lawsuit.

This lawsuit marks one of the rare instances of the Biden administration targeting a lender in its ongoing crackdown on appraisal bias. 

In recent years, the administration has taken several steps aimed at reducing racial and ethnic disparities in property valuations. In 2021, it created the Interagency Task Force on Property Appraisal and Valuation Equity, which has focused on preventing algorithmic and other forms of bias in home valuations and broadening access to the appraisal profession to improve diversity. 

In July, HUD reached an agreement with The Appraisal Foundation, which is responsible for setting standards and qualifications for real estate appraisers and providing voluntary guidance, to resolve allegations that there were discriminatory barriers preventing qualified Black people and other people of color from entering the appraisal profession. 

The DOJ’s focus on appraisal bias has already impacted other lenders. Last year, loanDepot faced a similar lawsuit from the DOJ and Consumer Financial Protection Bureau and settled the case earlier this year. 

Rocket Mortgage maintains that, as in that case, it adhered to all federal regulations in its appraisal practices.

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