Lenders held accountable for appraisal accuracy

The U.S. Department of Housing and Urban Development published a final rule July 20 that makes lenders accountable for appraisals on mortgages insured by the Federal Housing Administration. The rule is part of an ongoing effort to curb predatory lending and increase accountability in HUD's mortgage insurance programs. The rule goes into effect. Aug. 19.

"Holding lenders accountable when appraisers they select engage in fraudulent activities is another step this Administration is taking to protect home buyers, particularly minorities, from unscrupulous predatory lending practices," said Assistant Secretary for Housing/Federal Housing Commissioner John C. Weicher, in a HUD news release. "Predatory lending has no place in the FHA market or any other part of the real estate market."

According to HUD, predatory lending results when home purchasers become unwitting victims of lenders, sellers and appraisers, often working together. The unsuspecting home buyers either purchase homes with sales prices far in excess of the fair market value, or are substantially overcharged with costs associated with obtaining a mortgage.

The final rule, "Lender Accountability for Appraisals," makes lenders accountable for the quality of appraisals performed by the appraisers the lender hires. It strengthens HUD's regulations concerning the lenders' responsibilities when they select appraisers to determine the market value of properties that will be security for FHA-insured mortgages. The rule will help assure that home buyers will receive accurate statements of appraised values on homes they purchase using FHA mortgage insurance.

The rule specifies that lenders that submit appraisals to HUD that do not meet FHA requirements can be subject to the imposition of sanctions by HUD's Mortgagee Review Board. This new rule applies to both sponsor lenders who underwrite loans and loan correspondents who originate loans on behalf of their sponsors.

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities. HUD also promotes economic and community development and enforces the nation's fair housing laws.