Addressing the activities of corrupt appraisers and lenders, the Department of Housing and Urban Development published its final rule on FHA Single Family Mortgage Insurance and Lender Accountability for Appraisals on July 20. The ruling, which will go into effect Aug.19, 2004, clarifies that lenders are accountable for the quality of appraisals on properties securing FHA-insured mortgages.

The final rule states it is "designed to ensure lenders are aware of their responsibilities with respect to appraisals, and homebuyers receive an accurate statement of the appraised value of their homes." The final rule specifically provides that lenders that submit appraisals to HUD that do not meet FHA requirements will be subject to the sanctions imposed by the HUD Mortgagee Review Board. The final rule applies to both sponsor lenders that underwrite loans and loan correspondent lenders that originate loans on behalf of their sponsors.

Appraisal Institute Vice President of Public Affairs, Don Kelly said, "Our members have identified inappropriate client pressure as rampant throughout the lending industry. Ultimately, such pressure to 'make the numbers work' destabilizes the housing market and can lead to foreclosure, default and bank failures. We applaud HUD for taking action and for calling for accountability."

For a full account of the Appraisal Institute's reaction to the final rule, read the press release here.

The final rule follows publication of a January 13, 2003, proposed rule, and takes into consideration the over 300 public comments received on the proposed rule. After review of the comments, HUD has decided to adopt the proposed rule with minor changes to the regulatory text.

The rule is available on the Web at www.hudclips.org by searching in the Rules published in the 2004 Federal Register.

For more information, contact Vance T. Morris, Director, Office of Single Family Program Development, Office of Insured Single Family Housing, Room 9266, Department of Housing and Urban Development, 451 Seventh Street, S.W., Washington, DC 20410-8000; phone: 202-708- 2121.