Another Company Fights Back Against Bias at the Department of Justice

On December 5, Rocket Mortgage took an important step to fight back against the lawfare that has been a hallmark of the Biden Department of Justice (DOJ), filing a motion to dismiss DOJ’s the claim of appraisal discrimination, which the agency brought against them in October. But Rocket went a step further in the larger battle push back on government misconduct.  It filed suit against the Department of Housing and Urban Development (HUD) to demand clarification about how HUD’s unilateral policy shift, which insists that lenders interfere with an independent appraisal, does not contravene the directives of the Fair Housing Act (FHA).

The DOJ suit was a culmination of the Biden Administration’s attempt at using the executive branch to remedy the rising problem of appraisal bias. In this case, a Colorado homeowner had her home appraised as part of her application to refinance her property with Rocket. When the valuation came back $200,000 under an appraisal valuation she had received the previous year (another Rocket refinance), she was certain that it was yet another case of appraisal bias. Without a revaluation of that assessment, the attractive refinance rate she was expecting was not possible.

The DOJ and the customer both believed that Rocket should have intervened in what was they perceived to be a clear case of racial bias. Indeed, looking at the facts stipulated in the DOJ suit, there were several clear errors made by the independent appraiser. The most glaring, in terms of valuation, was his use of comparable homes (comps) from predominantly Black neighborhoods outside of the typical radius, rather from the immediate vicinity of her home.

The problem lies in the DOJ’s decision to name Rocket in the lawsuit. The law does not allow lenders to intervene at any point in the valuation process. The Dodd-Frank Wall Street Reform and Consumer Protections Act created a firewall between lenders and the appraisal process following the 2008 housing and financial crisis. This is called appraisal independence.

Rocket’s motion to dismiss and its effort to push HUD for further clarification takes a bold stand against this executive branch overreach, which Rocket’s president (Bill Emerson) called unfair, unlawful, and a danger to the housing market.

Emerson argues that while addressing discrimination in all its forms is a noble and important function of both the DOJ and HUD, the former’s inclusion of Rocket in its suit was mere marketing. He noted that while Rocket was the only named defendant in the DOJ press release, and the headline defendant in the lawsuit, their alleged actions occupy a rather minor part of the lawsuit. In fact, the motion for dismissal highlights that at no point does the government argue that Rocket played a part in the alleged discrimination.

Putting it more bluntly, Emerson declares that Rocket “will not stand idly by while the courts are used as venues to leverage our company’s name to publicize the case instead of the pursuing justice against those who may have committed wrongdoing.”

Not only is the government failing to pursue true justice in this case, it is also taking an approach that is inconsistent with Dodd-Frank’s legal doctrine of appraisal independence. What they have demanded of Rocket – and by extension, all lenders moving forward – cannot be reconciled with the law.

Perhaps the most confounding part of all of this was Emerson’s revelation this morning that HUD had already reviewed their employees’ interaction with the customer and found no fault.  He explained that the customer was asked to engage in a formal reconsideration of value – in which the customer could forward better comps for the appraiser to consider – but she declined. This is limit of what the law allows a lender to do.

As Emerson said on CNBC, “What’s happening now is you’ve got HUD, through DOJ, basically through enforcement, changing the game. … So, what we want is clarity for us, clarity for the industry.”

Reflecting on the current climate of the housing market, where demand outweighs supply, Emerson comments that it is a “very challenged market for folks to be able to buy a home and find one affordably.” Inserting uncertainty into the lending market, as the DOJ suit against Rocket threatens to do, will only put up more obstacles to affordability.