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HUD Having Second Thoughts about Appraisal Rule.
The Department of Housing and Urban Development has backed away from holding Federal Housing Administration lenders and appraisers equally responsible for the quality of appraisals.
Instead of holding lenders strictly accountable for bad appraisals, HUD said it will only sanction lenders if they knew or should have known that an appraisal was inaccurate or deficient.
The Mortgage Bankers Association said they support the final rule because it does not hold lenders and appraisers equally responsible for the appraiser's work.
"The final rule draws the correct line," said MBA senior vice president Kurt Pfotenhauer. "An FHA lender is primarily responsible for the quality of the loan, while the appraiser is primarily accountable for the quality of the appraisal."
HUD has always maintained that lenders are responsible for the quality of appraisers. But when it ran into a series of property flipping scandals in the late 1990s, it tried and failed to get FHA lenders to restructure loans where the appraisals were double the value of the properties.
Lenders and their attorneys claimed HUD lacked the authority to compel relief for the borrowers, although many lenders entered into legal settlements with consumer attorneys.
As an insurer of the loans, HUD felt it needed to clarify its rules to make sure lenders are responsible for the quality of appraisals. After all, lenders select the appraisers and they use the appraisal in underwriting the loan.
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Source: HighBeam Research, HUD Having Second Thoughts about Appraisal Rule.