The nation’s second-largest mortgage company says the U.S. government has conflicting policies on house appraisals, telling the lender it can’t interfere with them while also saying it has to in order to combat racial discrimination.
Rocket Mortgage sued the U.S. Department of Housing and Urban Development on Thursday in Colorado federal court, claiming the agency can’t make it correct an independent, third-party appraisal of a home’s value. That’s true even if the appraisal was racially biased, the lender said, citing the federal Truth in Lending Act that prevents interference with house valuations.
The lawsuit is in response to the government’s own court action filed against Rocket Mortgage and two appraisal companies in October. Rocket Mortgage failed to do anything to help a Denver homeowner who alleged one of the appraisers undervalued her home because she is black, according to court documents filed by the U.S. Department of Justice. The government also says Rocket Mortgage allegedly retaliated against the owner for complaining by canceling her refinance application.
The federal housing agency’s position that lenders must interfere to fix faulty appraisals is in response to a recent directive from President Biden to crack down on appraisal discrimination, Rocket Mortgage said in this week’s lawsuit. The government launched a task force made up of 13 federal agencies, including HUD, in 2021 to investigate the causes of appraisal bias and recommend ways to root it out.
The only reason the government included Rocket Mortgage in its suit was to attract more attention to the case, the lender claimed in a statement Thursday.
“Our long, exemplary track record of fair housing lending speaks for itself,” Bill Emerson, president of Rocket Cos., the mortgage business’ parent firm, said in the statement.
Rocket Mortgage is ranked second behind United Wholesale Mortgage among active lenders in the U.S., according to Bankrate.com.
From the Homes.com blog: Home appraisal and valuation: What you need to know
Appraisal fell dramatically
The Denver resident applied to refinance her duplex in January 2021 to take advantage of falling interest rates and rapidly rising values in the Hale neighborhood, southeast of downtown, according to the government’s October lawsuit. Her home had been appraised less than a year earlier at $860,000.
But this time an appraiser from a different company, Maverick Appraisal Group Inc., valued her property at $640,000, even though the owner had recently installed new gutters and doors and made other improvements. Maverick was hired to conduct the appraisal by Solidifi U.S. Inc., another appraisal business named in the lawsuit that in turn was hired by Rocket.
The resident questioned the lower amount in calls to Rocket, citing what she said was evidence the appraiser was biased against her due to her skin color.
“When the applicant expressed concern with the home's valuation during this refinance, Rocket Mortgage offered a path to challenge the appraisal through a value reconsideration process which complies with the law. The borrower declined to engage in that process on two separate occasions,” the lender said in its statement.
The owner recalled events differently in the government suit, saying Rocket told her she could accept the appraiser’s valuation, even if it seemed wrong, or the company would cancel her application. Later Rocket told her she could only challenge the appraisal by providing her own data to show what nearby, comparable properties were worth, “thus placing the burden on her to remedy her own allegation of discrimination,” according to the government.
When HUD investigated the owner’s discrimination complaint, it found that Maverick hadn’t followed Solidifi’s guidelines for finding comparable properties that had recently sold in the Hale neighborhood within a one-mile radius. The appraiser used several homes as comparables in a neighborhood more than two miles away, Park Hill, that has a much larger Black population than Hale, which is majority-white.
“These discriminatory practices have gone on for too long in Denver,” Matt Kirsch, acting U.S. Attorney for the District of Colorado, said in a statement in October.
What Rocket could have done was to order a new appraisal from another company or ask Maverick to fix its mistakes, the government said.
Changes to the Truth in Lending Act enacted in 2010 after the Great Recession require lenders to avoid inappropriate conflicts with the appraisal process by using an independent, third-party appraiser, Rocket said in its statement.
HUD declined to comment on Rocket's lawsuit. The Justice Department, Rocket, Solidifi and Maverick did not immediately respond to requests for comment.