HUD Watching Appraisal Firms

The Department of Housing and Urban Development has announced that its new "Appraiser Watch" monitoring system is fully operational.

Under Appraiser Watch, the Federal Housing Administration will be able to spot bad appraisers who are regularly connected to a high number of loan transactions that end up in default.

Those appraisers will be subject to special reviews and possibly removed from the agency's list of FHA-approved appraisers.

"FHA will be able to identify appraisers who either knowingly or unintentionally place homeowners at risk for losing their homes to foreclosures because of inflated valuations," according to HUD.

The new monitoring system is modeled after Credit Watch, which allows HUD to identify and automatically suspend FHA single-family lenders with abnormally high early default rates.

But the FHA decided it would not automatically remove appraisers.

"FHA has determined that Appraiser Watch should be a tool that identifies questionably performing appraisers, rather than one that automatically triggers their sanction and removal," HUD said.

In related news, federal banking regulators have issued a reminder to banks and thrifts that "emphasizes the need for independence in the selection of appraisers and in the review of appraisals."

The interagency guidance applies to all mortgage loans originated and purchased by depository institutions and their operating subsidies.

"The guidance recognizes that in some small institutions, absolute lines of independence might not be achieved. In such cases, effective internal controls should be implemented to ensure that no single person has sole authority to render credit decisions involving loans on which he or she ordered or reviewed the appraisal or evaluation."

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