Whether it’s refining your business model, mastering new technologies, or discovering strategies to capitalize on the next market surge, Inman Connect New York will prepare you to take bold steps forward. The Next Chapter is about to begin. Be part of it. Join us and thousands of real estate leaders Jan. 22-24, 2025.
Saying it’s been forced “onto a tightrope that is impossible to walk,” Rocket Mortgage has sued federal regulators, alleging the government is requiring lenders to grant appraisers independence and then holding the lenders liable if those appraisers engage in racial bias or discrimination.
“The government cannot require Rocket Mortgage to rely only on an independent appraiser’s opinion of value and – at the same time – find the company liable for not influencing or correcting the valuation,” the company said in a press release Thursday.
Rocket Mortgage’s lawsuit against the Department of Housing and Urban Development (HUD) is one prong of the company’s defense against an Oct. 21 lawsuit filed by the U.S. Department of Justice, which alleged that a Denver woman was unable to refinance her mortgage at a lower rate after an appraiser undervalued her home because she was Black.
In addition to appraiser Maksym Mykhailyna, the Department of Justice named Rocket Mortgage and Solidifi U.S. Inc., an appraisal management company, as defendants in its complaint.
The DoJ’s lawsuit claims Solidifi reviewed but did nothing to correct the allegedly biased appraisal, and that Rocket Mortgage retaliated against property owner Francesca Cheroutes by canceling her loan application.
Rocket Mortgage on Wednesday filed a motion to be dismissed as a defendant in the DoJ appraisal bias lawsuit and filed its own lawsuit against HUD challenging rules it issued for Federal Housing Agency (FHA) lenders in May.
In its lawsuit, Rocket Mortgage says it’s seeking to overturn a HUD ruling that the Fair Housing Act requires mortgage lenders to correct allegedly discriminatory appraisals, without regard to appraisal independence requirements.
The policy — spelled out in a May 1, 2024, letter to FHA lenders — prompted Fannie Mae and Freddie Mac to adopt similar requirements, without providing public notice or an opportunity to comment, Rocket Mortgage alleges.
“HUD has a policy of holding lenders responsible for appraiser bias or discrimination when lenders fail to ‘remediate deficiencies’ relating to perceived appraiser bias or discrimination,” attorneys for Rocket Mortgage alleged. “HUD has not, however, explained under what circumstances an allegation of appraiser bias or discrimination purportedly requires a lender to engage in ‘remediation,’ or what such ‘remediation’ should look like.”
In addition, contradictory laws requiring lenders to honor “the independent judgment of the appraiser” put Rocket Mortgage “between the proverbial ‘rock and a hard place,’” attorneys for the Detroit-based lender said.
“If it takes action with an appraiser regarding an allegedly discriminatory appraisal, then it faces the prospect of a government enforcement action or private lawsuit alleging violations of statutory appraiser independence requirements,” Rocket Mortgage said in its complaint.
“But if it complies with those independence requirements by not taking action to ‘directly or indirectly’ attempt to influence the ‘independent judgment’ of a third-party appraiser, then it faces the prospect of government enforcement actions and private lawsuits for alleged violations of the [Fair Housing Act]. This reality of the government’s inconsistent and conflicting approach requires judicial intervention.”
A HUD spokesperson said it does not comment on ongoing litigation.
In a separate motion, attorneys for Rocket Mortgage asked the judge presiding over the DoJ’s appraisal bias lawsuit to dismiss the company as a defendant, saying it had no authority to correct the allegedly discriminatory appraisal.
“In an obvious attempt to generate headlines and score political points at the expense of Rocket Mortgage’s reputation and good name, the government has labeled the company the lead defendant in this lawsuit and its statements to the press, despite its grievances having nothing to do with Rocket Mortgage,” attorneys for the company said.
The government’s complaint, they said, “is based on alleged discrimination by an independent, third-party appraiser — defendant Maksym Mykhailyna — in an appraisal he (and he alone) conducted on residential property belonging to Francesa Cheroutes. There are no allegations that Rocket Mortgage hired Mykhailyna or ever met him — it did neither.”
Mykhailyna and his company, Maverick Appraisal Group, were originally charged by HUD in an administrative proceeding along with Solidifi and Rocket Mortgage, a proceeding that was terminated in July after Cheroutes elected to have the DoJ pursue the case in federal court.
Mykhailyna did not respond to Inman’s request for comment, and so far no lawyer has registered with the court to represent him in the DoJ lawsuit.
Appraisal management companies
To comply with rules intended to protect appraisers from being pressured by lenders, Rocket Mortgage had ordered the disputed appraisal through a third-party appraisal management company, Solidifi.
Solidifi has denied wrongdoing, saying it will “vigorously defend any allegations regarding failure to detect or correct any alleged bias in an appraisal,” and that the company is committed to eliminating appraisal bias and discrimination.
Appraisal management companies (AMCs) took off after the 2007-09 housing bust and recession, when regulators pushed Fannie Mae and Freddie Mac to draw up rules intended to protect appraisers from coercion by lenders.
The rules were superseded by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which included appraisal independence requirements that helped AMCs solidify their position as an important player in the mortgage business.
Bill Emerson
“It is notable that, 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 announcing the DOJ’s lawsuit,” Rocket Companies President Bill Emerson said in a statement Thursday.
But instead of relying on the allegedly discriminatory appraisal, the DoJ alleges that Rocket could have ordered an appraisal from a different appraiser, or asked Mykhailyna to “consider more appropriate comps and fix other errors” in the 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,” prosecutors noted.
In a press release Thursday, Rocket Mortgage said it offered Cheroutes “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.”
Rocket Mortgage says it previously originated three mortgages for Cheroutes and is the servicer collecting monthly payments on her current mortgage.
“Any assertion that Rocket Mortgage is biased is false,” the company said. “Rocket Mortgage remains committed to homeownership for everyone who can sustainably afford it. In fact, the company has introduced several programs in an effort to bridge the racial homeownership gap.”
Get Inman’s Mortgage Brief Newsletter delivered right to your inbox. A weekly roundup of all the biggest news in the world of mortgages and closings delivered every Wednesday. Click here to subscribe.