Housing Bubble
Appraisal Institute hails proposed HUD rule
Leaders of the Appraisal Institute have hailed a proposed rule released by the Department of Housing and Urban Development that will hold lenders and appraisers equally accountable for the quality and accuracy of FHA appraisals. The proposed rule, which has been under consideration for the past year, would implement one of the recommendations made by Appraisal Institute and American Society of Appraisers in recent comments on the HUD Strategic Plan for 2003-2008.
"We are very pleased with this proposed rule, and we congratulate HUD Secretary Mel R. Martinez for moving forward on his efforts to crack down on mortgage fraud, predatory lending and other abuses," said Appraisal Institute President Alan E. Hummel, SRA. "The Appraisal Institute stands ready to assist HUD as it moves forward to implement the proposed rule."
The rule would hold lenders strictly accountable for the quality and accuracy of the appraisals that back up their loans. Further, the proposed rule specifically provides for the imposition of sanctions by the HUD Mortgagee Review Board on lenders who submit appraisals to HUD that do not meet FHA requirements. The proposed rule would apply to both sponsor lenders, who underwrite loans, and loan correspondent lenders, who originate loans on behalf of their sponsors.
"Hallelujah, it's about time," said Don Kelly, the Appraisal Institute's Vice President of Public Affairs. "I wish they had done this years ago. This is a direct FHA homebuyer and consumer benefit, and will go a long way toward addressing the problem of inappropriate client pressure on the appraiser."
The proposed rule will also ensure that procedures set forth in 1994 in what is commonly referred to as the Lender Select program are enforced. While HUD Mortgagee Letter 94-54 allowed lenders to select their own appraisers, it also required Direct Endorsement lenders to accept equal responsibility with the appraiser for the integrity, accuracy and thoroughness of the appraisal. In addition, Direct Endorsement lenders are also supposed to be held accountable by HUD for the quality of appraisals.
In April 1999, the General Accounting Office recommended HUD determine its own authority to hold FHA-approved lenders accountable for poor-quality appraisals performed by the appraisers they select. The GAO also recommended HUD issue guidance that sets forth the circumstances under which HUD may exercise its authority to hold lenders accountable. HUD informed the GAO it was working on a letter to mortgagees that it believed would meet the GAO's recommendations. Today's proposed rule would mark the first attempt by HUD to implement these recommendations.
"Since Lender Select was implemented in 1994, inappropriate client pressure of appraisers has increased dramatically, according to our members," noted Mr. Kelly. "It has become apparent that Lender Select, as it was originally proposed, cannot work without lender accountability. This is an important step HUD should take to ensure appraiser independence in FHA appraisal assignments."
Today and throughout its 70-year history, the Appraisal Institute is the leading organization for professional real estate appraisers. Through its extensive educational programs, the Appraisal Institute's more than 18,000 members are skilled in the up-to-date methods of real estate valuation for commercial and/or residential properties. Reflecting their unbiased and objective approach to real property appraisal and analysis, members of the Appraisal Institute adhere to a strictly enforced Code of Professional Ethics and Standards of Professional Appraisal Practice. Appraisal Institute members may hold the prestigious MAI, SRPA and SRA designations.
