"Our reputation is not for sale," the President of Rocket Companies, Bill Emerson, told NMP this morning, before the announcement that one of the nation's largest mortgage lenders had sued federal regulators had fully seeped into consciousness of an industry just waiting for a lawsuit like this to happen.
"We believe that they've got six fatal flaws in their process, and our lawyers are going after that right now," Emerson says.
Rocket Mortgage is taking the U.S. Department of Housing and Urban Development (HUD) to task in an effort to defend itself against allegations of appraisal bias levied against the lender in an October lawsuit filed by the Department of Justice (DOJ).
Rocket has filed a motion to dismiss the claim brought forward by the DOJ “based on the same regulatory conflicts and misapplication of applicable law,” per a press release.
As NMP has previously reported, attorneys across mortgage industry have warned that regulators risk litigation over fair lending enforcement actions that do not align with federal regulations, especially as it relates to recent redlining settlements.
"The laws and regulations are clear on appraisal independence," Emerson said. "We have no authority. HUD is choosing through enforcement or litigation to alter the playing field. We're going back and saying, 'Now you have to provide clarity to not only us, but the industry on how we're supposed to handle this.'"
Chief among the reasons mortgage lenders have settled with regulators, despite their grumblings about unfounded allegations, is an inability to afford the litigation it costs to challenge the federal government and protect their reputations. Not Rocket Mortgage.
"It's purely on principle," Emerson told NMP, adding that Rocket's Board is "in full support of this because you have to stand up when you are wrongly accused." Leading by example, Rocket wants to set the record straight for regulators and the industry.
"Here's the reality of life," Emerson continued. "The way this works is if you're wrongly accused and you write a check to settle, it just empowers the next time that they do this. I can appreciate a small lender not having the capital to do that, but there have been some larger lenders who have just decided that it's easier to write a check."
"We are not that company. We have never been that company. We never will be that company," Emerson asserted. "We have 15,000 team members who do the right thing every single day."
On Oct. 21, 2024, the Department of Justice (DOJ) filed a lawsuit against Rocket Mortgage, appraiser Maksym Mykhailyna, Maverick Appraisal Group, and Solidifi U.S. Inc., alleging racial discrimination in a January 2021 Colorado incident where a Black homeowner's home was undervalued based on her race.
To “correct 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,” Rocket’s filing contends that the DOJ’s claims against the company contradict HUD’s regulations requiring the separation of church and state as far as influencing appraisals goes.
"We are not allowed to intervene on the appraisal, the value of the appraisal," said Emerson. "We have to have an arms length relationship to that, and that's directly from the Dodd-Frank Act that came out of the Great Recession in 2007 and 2008. Appraisal independence is a requirement for a lender."
The DOJ’s initial complaint states that a homeowner applied for a refinance with Rocket Mortgage in January 2021. Rocket Mortgage hired Solidifi US Inc., which chose Mykhailyna from Maverick Appraisal Group to assess the property in a predominantly white Denver neighborhood.
The complaint alleges Mykhailyna used sales from distant, majority-Black areas, ignoring closer sales, and undervalued the property by over $200,000 compared to an appraisal less than a year earlier, despite rising home values.
After the homeowner raised concerns of discrimination, the defendant and DOJ allege that Rocket canceled the refinance. Emerson calls this a "misrepresentation of the facts." Rocket offered the borrower a reconsider of value (ROV), as required by law, which the borrower declined to accept.
"When the client said they didn't want the reconsideration of value," Emerson explains, "our team member said, 'I've got to refer you to another area of our organization to see if we can help you out. I can't help you any longer.' Unfortunately, [the borrower] took that as us canceling her transaction."
Rocket has originated three other home loans for the very same borrower, “with which there were no issues,” with a separate loan “currently being serviced by Rocket Mortgage, and also was being serviced by Rocket Mortgage at the time of the appraisal in question.”
In its press release, Rocket maintained that it “followed all applicable laws” and disputes the DOJ’s assertion that the lender had the authority to correct the allegedly discriminatory appraisal, and failed to do so.
“Today’s filings highlight the conflict between HUD’s regulations and the DOJ’s enforcement positions,” the press release continues. “We are looking forward to laying out all the facts of this case in court . . . It would be an offense to our workforce if we let the DOJ’s and HUD’s wrongful actions go unchecked.”
The "only reason" the DOJ included Rocket in the lawsuit was the “apparent motive to bring headlines to their claim,” Emerson contends. “In a case about the alleged actions of an independent appraiser that was contracted through an unaffiliated third party, Rocket Mortgage is listed first in the DOJ’s filing and is the only company mentioned by name in the headline of the government’s press release.”
As housing and mortgage regulators prepare for a shake up in anticipation of the incoming Trump administration, Rocket's lawsuit against HUD will unfold over the course of this transition, and as the administration establishes its regulatory priorities.
"We didn't take that into consideration when we filed," said Emerson. "Changes of administration have different focuses, but let's remember that there is a bureaucracy that exists at every agency, and when the politicals swap, the folks that have been in there for a long time are still there and they still have whatever ideology or belief that they have. Sometimes the folks that are coming in new can affect that and sometimes they can't, so we'll just have to see how that plays out."
A spokesperson for HUD declined NMP’s request for comment.
