HUD Publishes New Rule to Protect Homebuyers from Predatory Lending

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Final rule makes lenders accountable for appraisals on mortgages insured by the Federal Housing Administration
RISMEDIA, July 21 ? (KRT) ? As part of an ongoing effort to curb predatory lending and increase accountability in its mortgage insurance programs, The Department of Housing and Urban Development has published a final rule that makes lenders accountable for appraisals on mortgages insured by the Federal Housing Administration (FHA). The rule will be published in the Federal Register and becomes effective August 19, 2004.

“Holding lenders accountable when appraisers they select engage in fraudulent activities is another step this administration is taking to protect homebuyers, particularly minorities, from unscrupulous predatory lending practices,” said Assistant Secretary for Housing-Federal Housing Commissioner John C. Weicher. “Predatory lending has no place in the FHA market or any other part of the real estate market.”

Predatory lending results when home purchasers become unwitting victims of lenders, sellers and appraisers, often working together. The unsuspecting homebuyers 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 homebuyers 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.

“FHA’s ruling today shows consumers nationwide that each party – whether it is a lender, real estate agent or appraiser – should be held accountable for its role in the home-buying process,” added Kurt Pfotenhauer, the Mortgage Bankers Association senior vice president of government affairs. “The final rule draws the correct line. An FHA lender is primarily responsible for the quality of the loan, while the appraiser is primarily accountable for the quality of the appraisal.”

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