Beware of Appraisal Bias Risks in Your Originations

The U.S. Department of Housing and Urban Development (HUD) recently charged Rocket Mortgage, along with appraiser Maksym Mykhailyna, Maverick Appraisal Group, and appraisal management company Solidifi U.S. Inc., with racial discrimination. The allegations center around an appraisal conducted for a Black homeowner in Denver, where the property’s value was significantly undervalued compared to prior assessments. This alleged undervaluation occurred despite the homeowner making improvements to the property and the rising market prices in the area​ (The Mortgage Note)​​ (JD Supra)​.

The appraisal in question valued the homeowner’s duplex at $640,000, a stark contrast to the $750,000 and $860,000 valuations in 2018 and 2020, respectively. The homeowner reported concerns of racial bias, as the appraiser allegedly used inappropriate comparables from different neighborhoods, which may have contributed to the lower valuation. Despite these concerns, Rocket Mortgage proceeded with the appraisal and denied the homeowner’s loan application based on the lower valuation, without offering a reassessment or alternative solutions​ (The Mortgage Note)​.

Rocket Mortgage responded to HUD’s charges, emphasizing that federal law requires mortgage lenders to operate independently from the appraisal process. They argued that their involvement was limited and that the charges were an attempt by HUD to gain media attention. The case, currently pending, may be heard before an Administrative Law Judge or in federal district court if requested by any of the accused parties​ (JD Supra)​.

This case underscores the critical importance of vigilance against appraisal bias in the mortgage lending process. Lenders must ensure fair treatment for all applicants and maintain rigorous oversight of third-party appraisals to avoid discriminatory practices that can impact homeownership opportunities, particularly for minority communities. The outcome of this case could set a precedent for future handling of similar allegations and reinforce the enforcement of the Fair Housing Act​ (The Mortgage Note)​. For more details, you can read the full articles on The Mortgage Note and JD Supra.

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