Letter from Rocket Loans counsel to Chairman Clyburn and Chairwoman Velazquez, Nov. 24, 2020
Summary
Letter dated November 24, 2020, written on behalf of RockLoans Marketplace LLC (“Rocket Loans”) to Chairman Clyburn of the Select Subcommittee on the Coronavirus Crisis and Chairwoman Velázquez of the Committee on Small Business. It responds to follow-up questions on documentation of contract management and of the project's fraud controls, and describes the work of Rocket Loans, RER Solutions and Rapid Finance for the SBA Office of Disaster Assistance on EIDL applications. The letter states that the SBA-ODA initiated conversations on or around March 17, 2020 because of a growing backlog, and that on 04/16/2020 the processing system was opened to full capacity with over 3.5 million applications queued. It states that new pricing was established at $66.67 for each loan recommendation.
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Cite this document
“Letter from Rocket Loans counsel to Chairman Clyburn and Chairwoman Velazquez, Nov. 24, 2020.”
Original at coronavirus.house.gov. Archived at Pandemic Darlings, https://pandemicdarlings.com/source-documents/letter-from-rocket-loans-counsel-to-chairman-clyburn-and-chairwoman-ve-9a455951fc/
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1274 Library Street, 2nd Floor │Detroit, Michigan 48226 │www.rocketloans.com
November 24, 2020
PRIVILEGED AND CONFIDENTIAL
The Honorable James E. Clyburn The Honorable Nydia M. Velázquez
Chairman Chairwoman
Select Subcommittee on the Coronavirus Crisis Committee on Small Business
United States House of Representatives United States House of Representatives
Washington, D.C. 20515 Washington, D.C. 20515
The Honorable Steve Scalise The Honorable Steve Chabot
Ranking Member Ranking Member
Select Subcommittee on the Coronavirus Crisis Committee on Small Business
United States House of Representatives United States House of Representatives
Washington, D.C. 20515 Washington, D.C. 20515
Dear Chairman Clyburn, Chairwoman Velázquez, and Members of the Committees:
On behalf of RockLoans Marketplace LLC (“Rocket Loans”), this letter responds to follow-up questions
directed to our outside counsel. The additional requests focus on (1) the documentation related to
management of the contract and (2) the documentation related to the project’s fraud controls. This
response provides additional context to assist your Committees in understanding Rocket Loans’ role with
providing the Small Business Administration’s Office of Disaster Assistance (SBA-ODA) with a technology
solution.
About Rocket Loans
Rocket Loans is a subsidiary of Rocket Companies, a Detroit-based holding company consisting of tech-
driven real estate, mortgage, and financial services businesses – including Rocket Mortgage, Rocket
Homes and Rocket Auto. Each company is a separate legal entity operated and managed through its own
management and governance structure.
Rocket Loans sets the standard for a simple, fast, and secure personal lending experience. Our team
members are focused on creating a completely online, personalized technology platform to help financial
institutions make loans in a compliant, efficient, data-driven, and automated fashion. In 2016, we
successfully launched our online technology platform, rocketloans.com, to the public. Ultimately, we
were granted two patents related to our use of data driving decisions in our process: “User
Authentication” (Patent #10,685,131) and “Generating aggregated data from fragmented inputs” (Patent
#10,255,424).
1
About Rapid Finance
Founded in 2005, Rapid Financial Services is a leading provider of financing solutions to small businesses
throughout the United States. Through its financial technology-enabled underwriting platform, Rapid has
served more than 35,000 small businesses with over $2.2B in financing. Powered by a highly scalable
flexible technology platform and best-in-class customer service, the company excels at speed to decision
by leveraging commercially available and proprietary data sets along with proprietary risk and fraud
management algorithms to make the right offer to the right customer at the right time.
Summary of EIDL Program Related to COVID-19
The SBA-ODA needed a technology solution to analyze the onslaught of small business loan applications
that they were receiving for their EIDL program related to COVID-19. As explained in more detail below,
our combined efforts quickly overhauled the SBA-ODA’s pre-existing EIDL lending platform, which allowed
the SBA to successfully process and fund an unprecedented influx of applications.
“It was a historic year for the SBA’s disaster program, as we approved and disbursed more than three
times as many funds for the COVID-19 EIDL program ($211 billion) as we have for all disasters combined
in the Agency’s 67-year history ($67 billion),” said Associate Administrator for SBA-ODA’s James Rivera.1
Background and Contract Timeline
As noted in our previous responses and during our briefing, on or around March 17, 2020, the SBA-ODA
initiated conversations with RER Solutions-Rocket Loans due to a growing backlog of EIDL applications
(resulting from the national emergency declared on or around March 13).
It is our understanding that the following factors lead to the SBA-ODA’s need to overhaul the pre-existing
system as a result of the COVID-19 pandemic and national emergency:
1. Historically, the SBA-ODA’s system processed loan applications related to natural disasters limited
to specific geographical areas. Prior to COVID-19, Hurricane Irma represented the largest
application volumes for a specific event in the history of the SBA-ODA, resulting in around 110,000
applications and 33,000 funded loans. To date, over 15 million businesses have submitted EIDL
applications based on the COVID-19 national disaster.
2. Applications involving personal property damage have historically represented over 85% of
applications ever submitted. EIDL applications resulting from natural disasters represented less
than 15% of applications ever submitted to the SBA-ODA.
3. The pre-existing disaster system (DCMS) was built and scaled based on estimated volume
projections related to natural disasters hitting distinct geographic areas and primarily impacting
individuals, and that a natural disaster impacting the entire country at once had not been
contemplated.
The SBA-ODA reached out to the Rocket Loans team because we were delivering on our initial engagement
with the SBA and have extensive expertise in financial technology (“FinTech”) platforms. Rocket Loans
core business is focused on consumer lending, and while there are some parallels between consumer and
commercial lending, there are a myriad of unique and challenging differences. If not for Rocket Loans’
relationship with and deep knowledge of Rapid Finance’s capabilities, Rocket Loans would have likely
declined the SBA-ODA’s request for assistance.
1
https://www.sba.gov/article/2020/oct/28/sba-achieves-historic-small-business-lending-fiscal-year-2020
2
Once RER Solutions, Rocket Loans and Rapid Finance understood the needs of the SBA-ODA (through
phone conversations and system reviews with the SBA-ODA’s experts), we were confident that we could
present the SBA-ODA with a solid technology solution. Once we agreed to undertake the work, our teams
spent the next few weeks understanding the business requirements and demonstrating the newly built
rules-based platform as it was being configured to meet the needs of the CARES Act.
While RER Solutions focused on working with the SBA-ODA to determine the appropriate path forward
for providing the RER Solutions-Rocket Loans-Rapid Finance technology solution, Rocket Loans was
engaged in good faith, arms-length negotiations with Rapid Finance to use their proprietary technology.
Hundreds of individual engineers and consultants invested nearly a million hours of development time
over the course of 9+ years to create Rapid Finance’s technology. The system configured for use by the
SBA was a derivative of Rapid Finance’s own lending platform. The project also required the technological
development of a new online application (see enclosed documents for the design specified) for small
businesses to apply, and the integration of the system to eTran where approved loans would ultimately
reside (see enclosed document for the integration guide).
For additional context, the timeline below provides more detail regarding the RER Solutions-Rocket Loans-
Rapid Finance relationship.
Rapid Finance is a Leading FinTech Company specializing in Small Business Lending
2005 Rapid Finance (f/k/a RapidAdvance) is founded and begins to provide financial support
to small businesses.
2010-2020 Rapid Finance establishes itself as a FinTech leader in the small business lending
industry with capital investments to date in excess of $140M, culminating in a flexible
technology platform that can be configured to support countless business rules and
workflows.
Rocket Loans is formed and launches a FinTech platform in Marketplace Lending
2015 Rocket Loans is founded, as a direct-to-consumer FinTech marketplace lender.
2016 Rocket Loans launches rocketloans.com as a direct-to-consumer personal loan platform
based on automated underwriting through a self-serve online client portal. Multiple
patents are issued related to the identity verification and data aggregation processes to
verify income.
2016 Rocket Loans and RER Solutions establish a relationship in hopes that they may be able
to find opportunities to work together in the future.
Rocket Loans and RER Solutions respond to SBA request for Technology Services
09/2018 Rocket Loans and RER Solutions enter into a Teaming Agreement to respond to an RFP
issued by SBA.
12/2018 SBA awards RER Solutions a Single Award (IDIQ) Contract (IDIQ 73351019d0001) where
fair and reasonable pricing is established for services provided to retrieve consumer
and property data from multiple data sources, analyze data based on guidelines
provided by SBA, and render recommendations to improve accuracy and efficiency in
decision making on a cost per transaction basis. This recommendation engine served as
an automated feature within an overarching solution to process disaster relief
applications. The overall system (referred to as DCMS) encompassed online
applications, data validation, workflow, user interfaces used by SBA-ODA personnel to
review and make loan determinations, and an interface to eTran to obligate and fund
approved loans.
3
04/2019 RER Solutions and Rocket Loans entered into a Subcontract Agreement. (Please refer to
agreement previously provided to committee).
11/2019 RER Solutions and Rocket Loans deploy new technology into DCMS to improve the
accuracy and efficiencies of Loan Officers and Loss Verifiers in relation to physical
damages as a result of natural disasters.
COVID creates significant challenges for Small Businesses across America
03/13/2020 President Trump declares a National Emergency, which releases $7Bn in funding
available to small businesses via EIDL application process.
03/13/2020 Existing DCMS system begins to experience backlogs, which the SBA immediately
monitors and responds to in an attempt to provide support to small businesses
impacted by COVID.
03/17/2020 SBA contacts RER Solutions-Rocket Loans to describe their concerns related to
challenges in the pre-existing DCMS platform. While the SBA continued to address and
support the current DCMS solution, the DCMS solution was incapable of supporting the
existing backlog and were growing increasingly concerned with new applications that
continued to queue. It is our understanding that hundreds of thousands of applications
were being submitted per day.
03/20/2020 Rocket Loans requests verbally requests from RER Solutions to introduce Rapid Finance
in an effort to explore options in response to the SBA inquiry. Verbal discussions
ensued related to the possibility of creating a derivative work from the Rapid Finance
system which was specifically built to efficiently process business loan applications and
could be rapidly re-configured by verbally discussing the administrative controls to
update configurations and workflows. This significantly minimized any new engineering
that would be required to assist the SBA.
03/20/2020 Rocket Loans and Rapid Finance formalize a subcontracting relationship via a
contractual agreement.
03/21/2020 Rocket Loans and Rapid Finance voluntarily began incurring expenses by establishing a
copy of the code base in a fresh environment and performing necessary administration
to refresh the system and create a clean platform that could be used to configure
system parameters specific to the needs of the SBA. Rocket Loans and Rapid Finance
had no guarantees that the SBA would ultimately determine if this was the best
solution, but began to dedicate time, money, and resources in order to execute quickly
in the event we were asked to assist. This included efforts related to building a
framework to accept new online applications.
03/27/2020 CARES Act enacted, which increases funds available through EIDL.
EIDL Advance is presented as an option for small business owners along with other
changes to pre-existing EIDL program. 2
03/28/2020 RER Solutions, Rocket Loans and Rapid Finance conduct live demonstrations of revisions
to the beta version of the application process with the SBA-ODA.
03/29/2020 The SBA-ODA issues Task Order 2:
“This RFQ for the 2nd order against IDIQ contract 73351018D0001 to procure Data
Analysis and Loan Recommendation Services, Incorporate System and Process Changes,
to add e-Signature Capability and Grant Support as applicable for the Small Business
Administration, Office of Disaster Assistance in support of COVID-19.”
2
https://www.congress.gov/bill/116th-congress/house-bill/748
4
The documented requirements were provided in the Statement of Work in Task Order
2 and summarized below:
1.1 SPECIFIC REQUIREMENTS
Contractor must intake loan application information, analyze and supplement that
information as needed, create electronic loan documentation including e-signature
capabilities, and provide recommendations on loan decisions. Contractor will provide a
method of allowing SBA to access the system and provide final loan decisions and loan
disbursement. The service should be fungible to ODA’s Standard Operating Procedures
without a change in service level from small agency declarations to large presidential
declarations. The contractor must provide a loan recommendation as “approve” or
“decline” along with a copy of all information (in an electronic documentation format)
that the contractor used to make its recommendation, submitted to ODA for
technical/final review. Once the data has been analyzed and the recommendation
provided to ODA. An individual within ODA will review the documentation analyzed by
the contractor and will make the final determination of whether to approve or deny
any particular loan.
For loans approved by ODA, the contractor will originate a loan in the Office of Capital
Access (OCA) Capital Access Financial System (CAFS). The contractor will be responsible
for entering the required data to originate and disburse a Disaster loan. The contractor
will be will request permission from ODA to update/modify loan data as needed. The
contractor is responsible for ensuring that personnel adhere to SBA security and
financial controls for loan data.
Enclosed is the complete Statement of Work.
03/29/2020 Based on the preparation occurring over the previous week, RER Solutions, Rocket
Loans and Rapid Finance conducted a final live walkthrough of the application with the
SBA, final adjustments made, and new application portal specific to the CARES Act was
launched.
03/30/2020 With the issuance of Task Order 2, the SBA, RER Solutions, Rocket Loans, and Rapid
Finance representatives worked via online presentations, and over the phone to walk
through configuration settings in real-time that were adjusted and tested based on
verbal input from SBA-ODA. These efforts continued until the processing system could
be stood up to begin processing queued applications.
04/05/2020 Applications not previously processed from the DCMS queue are merged with pending
applications from the new portal and sequenced in the order in which they were
received.
04/07/2020 The system to process applications, based on configurations and adjustments made and
tested in real-time at the direction of the SBA begins processing applications in small
batches. This was done intentionally to verify all of the configurations that had been
previously made could be reviewed and confirmed prior to processing large quantities
of applications. Minor adjustments were discussed and modified in real-time over the
course of the following week.
04/12/2020 eTran integration launched, which completes entire front-end process lifecycle of
creating application, processing, and funding.
5
04/16/2020 The processing system is opened to full capacity. At the time, there were over 3.5
million applications queued. On average about 110,000 applications per day started to
flow through the system. The system was monitored, supported, and maintained 7
days a week, 24 hours a day.
03/2020- RER Solutions-Rocket Loans-Rapid Finance provide daily and continuous support and
Current enhancements based on the needs and direction of the SBA.
CONTRACT MANAGEMENT
It is our understanding that, prior to the declaration of the COVID-19 emergency, the SBA-ODA did not
anticipate the need for a new solution to accept and process EIDL applications. As a result, there were no
formal requirements that were documented in anticipation of a new solution.
Rather, our understanding is that the SBA-ODA was growing increasingly concerned, even in the
timeframe between the national emergency declaration and the CARES Act, that the mounting backlog of
applications could not be efficiently reviewed and processed in a manner to appropriately meet the needs
of small businesses across the entire country. For context, our understanding is that since the creation of
the SBA-ODA, small business EIDL applications represented a small fraction of historical disaster relief
applications, and in this case was not limited to a geographical footprint. Nearly every small business in
America, including independent contractors and sole proprietors became eligible for relief.
As the Committees are aware, RER Solutions is the Prime Contractor in this engagement. As such, RER
Solutions facilitated all contractual administrative duties, including the negotiating of the cost of
leveraging the existing Rapid Finance system and related services. As we have stated in the past, Rocket
Loans served as a subcontractor to RER Solutions, and Rocket Loans engaged Rapid Finance as a
subcontractor in order for Rocket Loans to fulfill its duties under this agreement. As a subcontractor,
Rocket Loans received 49% of net revenues (after shared expenses) as a result of this engagement, and
Rocket Loans was solely responsible for compensating Rapid Finance, as their subcontractor, from that
49%.
RER Solutions synthesized from all involved parties the technology solution that needed to be configured
on an expedited basis and provided a quote to the SBA that extended the pricing already in place under
the pre-existing engagement. The SBA was buying a vetted technology solution and the team provided a
roadmap for configuring it to the specific needs of the SBA-ODA. As such, none of the parties kept nor
were expected to keep hourly records.
RER Solutions also ensured the quote included tech support and access to loan processors at Rapid
Finance who were familiar with the platform to provide manual intervention support when appropriate.
The core of the technology solution was designed to process applications and auto-recommend, but there
was still an understanding that a significant percentage of loans would require manual review, and all
would require SBA employee ultimate approval.
The contract Rocket Loans entered into with Rapid Finance focused on what the parties believed was fair
in light of the unusual and urgent circumstances and based on the known value of the Rapid Finance
product. Rocket Loans pays Rapid Finance 100% of Rapid Finance’s hard costs, plus a monthly fixed fee
March 2020 - June 2021. The parties also agreed that Rocket Loans would pay Rapid Finance 20% of
Rocket Loans’ net revenue from this engagement. In August, the parties agreed to increase Rapid
Finance’s share from 20% to 40%.
6
Enclosed are copies of Rocket Loans’ invoices to RER Solutions, and Rapid Finance’s invoices to Rocket
Loans.
INTERNAL CONTOLS AND FRAUD CONTROLS
The Committees have requested additional information related to the EIDL system’s fraud controls,
business rules, and a sample of the dashboard created for the SBA-ODA loan officers. Enclosed is Rapid
Finance’s System Training Manual delivered to the SBA-ODA, which includes screenshots of all Loan
Officer screens.
The RER Solutions-Rocket Loans-Rapid Finance technology solution married the configurable, proprietary
system Rapid Finance used in its business with the unique needs of the SBA-ODA. Because the system is
extremely complex, yet flexible, and that prior to this engagement it was leveraged exclusively by Rapid
Finance internally, there are no promotional materials to describe the rule-configuration process. That
said, we provide the list of controls below, and believe this list along with our upcoming briefing from key
contractor personnel will explain how the rules are configured to meet the specific needs of this inquiry.
The system performs data validation (for example making sure a phone number contains only numbers),
and data verification (for example using independent third-party services to confirm that a phone number
is valid). The system does not confirm the existence of fraud but rather flags a loan for potential fraud
based on performing data validation and verification on all available inputs through the controls below to
verify: business owner(s) data, business data, bank account information; evaluate credit report
information as suspicious and potentially fraud; behavioral data showing application velocity, common
information on different applications (IP Address, Device ID, names, phone number, email, EIN/SSN, etc.)
When any data validation, data verification, or potentially suspicious activity is discovered, the loan is
flagged with the relevant information for Loan Officer review where the ultimate approval decision is
made.
Data Validation & Controls:
• Intake Application form field validations for correct data types and completeness
• Intake form user input review prior to submission
• Applicant data submission certification requirement
• Identity information application velocity check
• Identity Information validation
• Email address validation
• Phone number validation
• User identity validation with out of wallet questions
• Public records lookups
• Bank account data validation check
• Bank account ownership check
• IP address and device screening
• Credit report for score and fraud flags
System Decision Controls:
• Duplicate application detection
• Related application linking on multiple data attributes
• Red flag alerts for data attributes indicating potential for suspicious activity
• ODA Rule of Two requirement for loan approval
• 70+ business rules to determine business eligibility & loan/advance amounts
7
• Role-based approval restrictions
• Role limited reconsideration workflow
• User restricted failed disbursement processing
• User action logging and notes updates
System Access and Workflow Controls:
•
•
•
•
•
Network & Application Security:
•
•
•
•
•
•
Attack Mitigation and Security Monitoring:
•
•
•
A key distinction related to fraud detection between the commercial implementation of the system versus
the environment configured for the SBA-ODA is dependency on tax returns to validate information
submitted in applications. In commercial use, Rapid Finance’s processes routinely required an applicant
to submit an IRS 4506-T form. Through the IRS 4506-T form, an applicant authorizes the lender to retrieve
unedited tax returns directly from the IRS to among other things, verify the existence of a business,
validate that it was operational, validate the type of business (especially in the cases of self-proprietorship
and 1099 employees), and confirm actual income reported. The version of the Rapid Finance proprietary
technology solution configured for the SBA-ODA removed this standard commercial process to obtain tax
returns from applicants since the CARES Act prohibits the ability to use tax returns in the verification
process.
Rapid Finance and Rocket Loans worked with SBA to design a system that flagged applications for certain
fraud markers. The final review and signoff of those flags was solely the province of SBA-ODA. SBA-ODA
provided guidance related to how the SBA-ODA Loan Officers review and decision potential fraud once
flagged by the system.
The Committees are certainly aware of, and rightfully concerned about, the alarming reports issued by
the OIG that indicate numerous categories of “potential” fraud. We encourage the Committee to review
the entire reports, including the SBA responses to the OIG. In their responses, the SBA provides evidence
of research, analysis, and the results of that analysis to largely refute actual fraud within the categories
sited by the OIG. The data summarized on page 65 of the “Inspection of Small Busines Administration’s
Initial Disaster Assistance Response to the Coronavirus Pandemic Report Number 21-02 October 28,
8
2020”3, demonstrate the direct impact of the controls previously described by showing the category and
count and volume of loans that were prevented from funding as a result of the system flags set during
processing.
VALUE
The Committees asked us to provide information sufficient to show the value that Rocket Loans has
provided. We certainly appreciate the Committees’ request, and we respectfully suggest there are several
factors to consider in assessing the value.
Rocket Loans and Rapid Finance provided the SBA-ODA with a proven commercial platform that
(a) has been operational in Rapid Finance’s day-to-day business to serve the needs of small
business owners, and (b) was the result of nearly a decade of significant capital investments and
nearly a million hours of development. Also, important to note, this proven commercial platform
included integration of multiple pre-existing, pre-negotiated relationships with vetted
commercial third-party vendors.
The RER Solutions-Rocket Loans-Rapid Finance team was engaged to implement this proven
technology solution, and it was never within this team’s purview to track employees or hours
related to implementing this solution. We were not engaged as consultants, but rather as a team
to configure and implement a technology solution to assist the SBA-ODA in dealing with this
national emergency.
As such, you will note from the invoices submitted, neither Rapid Finance nor Rocket Loans
tracked the hours by employee. Any attempt to itemize the work performed to create this
technology solution would require a breakdown of nearly a million hours contributed by hundreds
of employees and consultants over the previous 9+ years.
Our ability to deliver on this engagement in such an expedited fashion to meet the growing
national emergency was only possible due to the pre-existing relationships with RER Solutions,
Rocket Loans, and Rapid Finance. Without these companies’ coordination, there would be no
solution to address the SBA-ODA’s need to provide significant emergency EIDL relief as a result of
the COVID-19 pandemic.
The initial pricing related to Task Order 2 was established under the pre-existing IDIQ (from 2018)
that was competitively bid and selected by the SBA-ODA after thorough evaluation. This
established the market value of individual loan recommendations. The initial price related to
COVID-19 support was kept the same as the original task order but included a significant increase
in the scope of services.
As the CARES Act was enacted, new pricing was established. The new pricing was established at
$66.67 for each loan recommendation. This represented a substantial decrease from the original
fair market price, despite a substantial expansion of scope - including a new online application
intake, data validation and verification, implementation of numerous fraud/activity alerts,
integration to numerous third-party service providers, custom workflows, and the need to
interface with eTran.
Unprecedented volumes of unanticipated EIDL applications continued to require ongoing support
of the application and the need for RER Solutions to continue to work with the Contract Office.
3
https://www.sba.gov/sites/default/files/2020-10/SBA%20OIG%20Report%2021-02.pdf
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