The Department of Housing and Urban Development has softened its approach in adopting a rule that holds Federal Housing Administration lenders accountable for inaccurate or fraudulent appraisals.Under the final rule, lenders could be subject to sanctions if they knew or should have known that an appraisal was inaccurate or deficient. This test appears to be acceptable to lender groups. At first, lenders thought HUD wanted to create a "no-fault" system where lenders are automatically liable if a loan goes bad and the appraisal is off the mark. Lenders maintained that HUD does not have the statutory or regulatory authority to hold lenders responsible for the work of appraisers and such a no-fault system would force lenders to exit the FHA system. In the final rule, HUD says it never intended to impose such a "strict" liability requirement on lenders. "HUD recognizes that lenders shouldn't be held responsible for the appraisals of independent contractors unless they are culpable," said Phillip Schulman, a partner in the Washington law firm of Kirkpatrick & Lockhart.

Subscribe Now

Authoritative analysis and perspective for every segment of the mortgage industry

30-Day Free Trial

Authoritative analysis and perspective for every segment of the mortgage industry