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Federal regulators are engaged in an “ongoing law enforcement investigation” to determine whether the real estate brokerage arm of one of the nation’s biggest mortgage lenders, Rocket Companies Inc., has engaged in illegal practices to drum up business.
Rocket first disclosed the investigation of its real estate brokerage subsidiary, Rocket Homes, by the Consumer Financial Protection Bureau (CFPB) in a July 7, 2020 regulatory filing — a month before the company’s initial public offering.
Rocket informed investors at the time that the CFPB had issued a civil investigative demand to Rocket Homes in May, 2020, to determine if the company had conducted any activities that violated the Real Estate Settlement Procedures Act, or RESPA — a consumer protection law prohibiting the payment of unearned kickbacks or referral fees in exchange for business.
Rocket Homes is licensed as a real estate brokerage in all 50 states, enabling it to post for-sale listings from multiple listing services on a property search site, Rockethomes.com, and collect fees from a network of more than 20,000 partner agents that it refers buyers and sellers to. Rocket Mortgage also generates leads for agents when unrepresented homebuyers qualify for loans.
According to the company’s most recent annual report to investors, last year Rockethomes.com attracted an average of 2.05 million unique visitors a month, and Rocket Homes Partner Real Estate Agents were involved in 32,700 transactions, helping Rocket Homes generate $52.8 million in gross revenue.
The CFPB does not comment on the status of ongoing investigations. But last week, Inman has confirmed, the bureau turned down a Freedom of Information Act (FOIA) request filed by a competitor and critic of Rocket Homes — HomeOpenly owner Dmitry Shkipin — who sought information on the status of the bureau’s investigation.
“I have determined that the information you are seeking relates to an ongoing law enforcement investigation,” CFPB Acting FOIA Manager Paul Levitan wrote to Shkipin on March 30. “Therefore, I am withholding all records, documents, and/or other material, which if disclosed prior to completion, could reasonably be expected to interfere with law enforcement proceedings and final agency actions related to those proceedings.”
The CFPB’s RESPA investigation of Rocket Homes has been previously reported by Inman and other news outlets, but it was unclear whether the investigation was still underway.
In first disclosing the investigation to potential investors in 2020, Rocket said it intended “to cooperate fully with the CFPB” and that the company was “confident in the compliance processes that Rocket Homes has in place.”
A similar disclosure was provided in the company’s 2020 annual report to investors. But in two annual reports since then, the company has noted only that “The CFPB has in the past and may in the future issue civil investigative demands to our subsidiaries.” While CFPB investigations can drag on for years, the language in the FOIA denial shows the bureau wants to preserve its ability to pursue an enforcement action against Rocket Homes.
Rocket — which on Monday announced new incentives that reward homebuyers who work with both Rocket Mortgage and Rocket Homes — declined to provide additional comments to Inman on the CFPB’s ongoing RESPA investigation, or on steps Rocket has taken to ensure that programs introduced since the investigation was launched are RESPA compliant.
Instead, in a statement provided to Inman Monday, a Rocket spokesman called into question Shkipin’s role in revealing that the CFPB’s RESPA investigation of Rocket Homes remains active.
“It’s shocking that this publication [Inman] would use a relatively unknown competitor to Rocket Homes, Dmitry Shkipin, as a source for any article, let alone one about Rocket Homes,” Rocket’s statement said. “In what has been a yearslong desperate attempt to gain industry relevance, Mr. Shkipin seems to have filed a multitude of parasitic complaints against the largest marketplace participants. In fact, a simple search of his name reveals a history of Shkipin imploring the government to consider legal action against large companies including Amazon, Uber, Lyft, Redfin, Opendoor and others to the benefit of his unknown, fledgling startup.”
Shkipin, who provided Inman with copies of his FOIA request and the CFPB’s response, is the owner of HomeOpenly, which bills itself as an “open real estate marketplace” that connects real estate agents and consumers at no cost to either.
“Warning consumers about price fixing and unlawful kickbacks between real estate brokers is a public service and so is reporting this information to the government,” Shkipin said in a statement to Inman. “Rocket Homes is the true parasite and a price fixing cartel; HomeOpenly is the cure.”
In the past, Shkipin has alleged that broker-to-broker referral networks such as those operated by Zillow and Realtor.com are “kickback schemes.” HomeOpenly’s website includes critical “reviews” of Rocket Homes and other competitors including HomeLight, which has sued him for trademark infringement and false advertising (Shkipin has filed a countersuit alleging restraint of trade and antitrust violations).
The CFPB in 2018 wound up a three-year investigation into whether Zillow violated RESPA by allowing agents and lenders to combine their marketing efforts. The CFPB — led at the time by Trump appointee Mick Mulvaney — concluded its investigation without taking any action against Zillow.
But Zillow shareholders sued the company claiming breach of fiduciary duties and unjust enrichment over the company’s failure to disclose the CFPB investigation until May 2017, when it had already been underway for two years. Two shareholder lawsuits against Zillow over the co-marketing program were consolidated into a single lawsuit in January 2018 and granted class action status in 2020.
The judge presiding over that case granted preliminary approval Monday of a $15 million settlement, pending an Aug. 8 settlement hearing. Zillow has consistently maintained that its agent-lender co-marketing program — which is still in place — is RESPA compliant, and admitted no wrongdoing in agreeing to settle the case.
Rocket’s many brands
While providing home loans through Rocket Mortgage is Rocket’s biggest business, it also helps consumers line up real estate services, personal loans, used cars and rooftop solar systems through subsidiaries Rocket Homes, Rocket Loans, Rocket Auto and Rocket Solar.
As rising interest rates hammered the company’s mortgage business — Rocket reported a $493 million fourth-quarter net loss — the company has been repositioning itself as a fintech platform capable of unlocking the “lifetime value of the client” by cross-marketing products and services.
Source: Rocket Companies February 2023 investor presentation
At the heart of the fintech strategy was Rocket’s 2021 acquisition of Truebill, a personal finance app that tracks spending and helps users budget and boost their credit scores. Since rebranded as Rocket Money, the app helps Rocket acquire prospective mortgage customers for less than $100 per client, the company has said.
The company then seeks to convert those prospects into mortgage borrowers through loyalty programs like Rocket Rewards and a Rocket Visa Signature Card aimed at first-time homebuyers.
When prospects are ready to buy a home, Rocket can not only provide financing, but refer them to a real estate agent and provide title and closing services through another subsidiary, Amrock.
To prevent consumers from being steered and encourage them to shop for a mortgage settlement services, RESPA prohibits companies from paying unearned kickbacks or referral fees in exchange for business. Other things of value, such as marketing services, that are provided in exchange for business can also be considered problematic under RESPA or similar state laws, depending on how they’re provided. The law does allow payments under cooperative brokerage and referral arrangements.
On Monday, Rocket announced a new BUY+ program, which provides homebuyers working with a Rocket Homes Partner Agent a closing cost credit worth up to $10,000. Sellers who work with a Rocket Homes Partner Agent can qualify for a “SELL+” rebate equal to 1 percent of their home’s sale price, and can also claim the BUY+ closing credit if they also buy with Rocket Homes and Rocket Mortgage.
“Blanket, uniform, restrictive, one-sided, pre-negotiated referral agreements between Rocket Homes and a network of 20,000 ‘partner agents’ is per se unlawful violation of the Sherman Antitrust Act,” Shkipin alleged in a statement provided to Inman. “A per se violation requires no further inquiry into the actual effect on the market or the intentions of those entities and persons who are engaged in the practice.”
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