WASHINGTON – The Department of Housing and Urban Development (HUD) has proposed a rule – 24 CFR Parts 25 and 203 – that includes provisions concerning the responsibilities of lenders approved by the FHA in the selection of appraisers to perform appraisals on properties used as security for FHA mortgages. The rule requires lenders to be held strictly accountable for the quality of appraisals on properties securing FHA insured mortgages. The rule also provides sanctions for those lenders who submit appraisals to HUD that don't meet FHA requirements. The proposed rule would apply both to sponsor lenders who underwrite loans, as well as to loan correspondent lenders who originate loans on behalf of their sponsors. HUD said the proposed changes "will help protect the FHA Insurance Fund, ensure better compliance with appraisal standards, and help to ensure that homebuyers receive an accurate statement of appraised value." In explaining the need for the proposed rule, HUD wrote that "FHA has found that most appraisers perform appraisals in accordance with FHA standards. There are some instances, however, in which some lenders tacitly require appraisers to make the appraisal computations match the sales price to ensure that a home sale and mortgage loan closes for the appraiser to obtain additional business. Other instances have occurred, including recent episodes of predatory lending activity.whereby lenders, realtors, investors, and others have participated in so-called property `flipping' schemes to inflate home prices and perpetuate sales that generate fees and charges to participants in the transaction. There are additional examples of fraudulent activity that could have been prevented if the underwriters had properly reviewed the appraisal reports..The proposed rule will ensure accountability of lenders for poor appraisals and thereby protect the FHA Insurance Fund, ensure better compliance with appraisal standards, and help to ensure that homebuyers receive an accurate statement of appraised value.