Fair Housing Act
Rocket Mortgage v. HUD
Date: Dec. 5, 2024
Issue: Whether the U.S. Department of Housing and Urban Development (HUD) violated the Fair Housing Act (FHA) by requiring lenders to rely on the independent judgment of licensed third-party appraisers for property valuations while also mandating that lenders interfere with appraisal independence.
Case Summary: In response to the U.S. Department of Justice’s (DOJ) lawsuit claiming it engaged in racial appraisal bias, Rocket Mortgage countersued HUD, claiming it violated the FHA by enforcing “conflicting and irreconcilable” mandates.
In 2021, Francesca Cheroutes engaged with Rocket Mortgage, appraisal management company Solidifi U.S. Inc., appraisal company Maverick Appraisal Group Inv., and its owner Maksym Mykhailyna to refinance her home. According to Cheroutes, Mykhailyna undervalued her home by over $200,000, disregarding improvements to her property and using sales outside her predominantly white neighborhood in his appraisal. Rocket Mortgage allegedly cancelled her refinance application after being informed of the alleged discrimination. As a result, Cheroutes filed a complaint alleging racial discrimination with HUD, which later referred the case to DOJ.
On Oct. 21, 2024, DOJ sued Rocket Mortgage, Solidifi, Maverick Appraisal Group, and Mykhailyna for alleged violations of the FHA for discriminating against Cheroutes. DOJ claimed that Rocket Mortgage should have ordered an appraisal from a different appraiser or attempted to remedy the discrimination. In response, Rocket Mortgage filed its complaint on Dec. 5, 2024.
In its complaint, Rocket Mortgage argued that HUD forces it to adopt conflicting and irreconcilable positions on appraisal independence during the mortgage loan origination process. It explained that HUD requires lenders to rely on the independent judgment of licensed third-party appraisers for property valuations. Under this framework, HUD has accused lenders like Rocket Mortgage of interfering with appraisers’ independence and has threatened them with monetary penalties for such actions. That said, Rocket Mortgage claimed that HUD now believes that lenders should interfere in appraisal independence. Put differently, HUD now claims that lenders like Rocket Mortgage have the “authority to correct” allegedly discriminatory appraisals. HUD insists that lenders must use this authority when allegations surface and that failing to do so constitutes a violation.
Rocket Mortgage also argued that federal law mandates appraiser independence and prohibits mortgage lenders from influencing the valuations of residential properties. In 1989, Congress enacted the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), establishing a framework to regulate real property appraisals. In 2006, the Department of the Treasury’s Office of Thrift Supervision (OTS) implemented FIRREA by promulgating rules that set standards for federally related transactions. Under these rules, lenders must take “appropriate steps to ensure that the appraisers exercise independent judgment and that the appraisal is adequate.” Lenders must also avoid having any direct or indirect financial or other interest in the property or transaction. Rocket Mortgage also explained the Dodd-Frank Act amended the Truth in Lending Act (TILA) to include a section titled “appraisal independence requirements.” This amendment imposes civil penalties of up to $20,000 per day for ongoing violations of TILA’s appraisal-independence provision, with a penalty of $10,000 for a first violation.
In addition, Rocket Mortgage claimed that HUD interprets anti-discrimination laws as requiring mortgage lenders to address allegedly discriminatory appraisals, thereby overlooking appraisal independence requirements. On June 1, 2021, President Biden announced the Task Force on Property Appraisal and Valuation Equity (PAVE). This initiative brings agencies together to study appraisal bias and create recommendations to eliminate racial and ethnic bias in home values. According to Rocket Mortgage, HUD supported PAVE’s goals but strayed too far by imposing new rules on lenders, not just appraisers. Further, HUD holds lenders responsible for appraiser bias or discrimination if they fail to address problems tied to such bias. Rocket Mortgage asserted that HUD has not explained when lenders must act or what steps they must take to fix these issues. Rocket Mortgage noted that this policy caused it harm, pointing to the “Charge of Discrimination” it received after Cheroute’s accusations.
Finally, Rocket Mortgage argued that HUD violated the Administrative Procedure Act by failing to provide notice and comment. According to Rocket Mortgage, HUD’s policy of requiring lenders to take responsibility under the FHA for appraisals performed by independent, third-party appraisers strays from the federal government’s longstanding practice of requiring lenders to honor appraiser independence. In Rocket Mortgage’s view, HUD’s new policy is final agency action that has the force and effect of law, and thus needed to go through notice and comment.
Bottom Line: HUD’s answer to Rocket Mortgage’s complaint is due Feb. 3, 2025.
Documents: Complaint
