Court brings the hammer down on Quicken in appraisal case

Quicken Loans arguably has the mortgage industry’s squeakiest-clean image — named by J.D. Power as No. 1 in home loan customer satisfaction for seven years in a row and No. 1 in loan servicing for three years straight. It also has a reputation as a technology innovator, witness its heavily advertised and popular “Rocket Mortgage” option that cuts time and red tape for applicants.

So it might come as surprise that a federal district court last week levied nearly $11 million in fines and damages against the company for home owners who the court said were victims of an alleged appraisal tampering scheme by Quicken during the housing boom and bust years in West Virginia.

Quicken allegedly provided appraisers advance “estimates” of property values in assignments on home financings, effectively communicating the amounts Quicken needed to fund the loan. Plaintiffs in a class action suit affecting 2,770 home owners said appraisers working for Quicken had overstated the market worth of their properties, putting them underwater on their loans from the start. One home-owning couple said in the original complaint that Quicken’s appraiser had reported their property was worth $151,000, significantly higher than its actual value of $115,500. The court determined that Quicken’s practices constituted “unconscionable” conduct under the West Virginia Consumer Credit and Protection Act.

“Once an appraisal is tainted by the implication of influence over the appraiser, especially by the party compensating the appraiser,” the court said, “the resulting appraisal cannot by any established standard be fair, valid and reasonable.” The court also found that by “concealing” what it did, Quicken “deceived the plaintiffs.” U.S. District Court Judge John Preston Bailey called Quicken’s conduct “truly egregious” in that it “flew in the face of prudent lending practices for the benefit of Quicken’s bottom line.”

In a statement for this column, Quicken strongly disputed the court’s conclusions. It said it plans to appeal the decision and that “there is no evidence” that provision of estimates of value in advance “impacted the opinion of local independent, licensed, professional home appraisers in West Virginia.” Quicken added that “there is also no evidence that the valuations the appraisers issued at the time were inflated in any way or caused any damages whatsoever to a single plaintiff in the class. The facts of this case are clear and we are confident that both the judge’s ruling and the damages assessed will be overturned on appeal.”

David Stevens, President and CEO of the Mortgage Bankers Association, defended Quicken, a prominent member of the trade group, arguing that “it was a common industry practice during the time these loans were made to provide [an] owner’s estimate of value to appraisers, until the law changed nationwide in 2009.”

But was supplying advance estimates of value a commonplace industry practice back then? Appraisers I spoke with had differing opinions on the matter. Lori Noble, an appraiser with Real Property Consulting Group in Charleston, West Virginia, told me that “I never saw other companies do it” — that is, include “owner’s estimate” dollar figures to appraisers along with order forms offering the assignment of work. But Pat Turner, an appraiser in Richmond, Virginia, said during the boom years, before federal appraisal reforms were enacted, lenders and loan officers weren’t shy about revealing the target value they needed to close a loan. In fact, he said, they got their message across far more bluntly than simply labeling the number needed as an “owner’s estimate.”

Major lenders “actually supplied [appraisers] with the figure needed to make the deal work,” he said. Frequently there was no subtlety about it. Some loan officers “would call appraisers and say: ‘If you can’t make the value, don’t do the appraisal.'” And if the appraiser told the loan officer that there was no way he or she could hit that value, the loan officer would threaten to withhold future assignments. “If you don’t make value you will never get another deal from us,” they would say, according to Turner.

So what to make of this decision, which touches on one of the most sensitive issues in real estate?

Clearly this case is not over, given Quicken’s plans to appeal. The final judgment is not in. But it illustrates a fundamental point: Consumers expect and pay for accurate and independent valuations of their homes and the equity they have in it, totally free of outside influences, from any source.