October 29, 2003
HUD/FHA IMPLEMENTS "APPRAISER WATCH" MONITORING SYSTEM TO CURB PREDATORY LENDING
System Tracks Historical Performance of Appraisers
WASHINGTON - The Department of Housing and Urban Development's on-going efforts to curb predatory lending received a boost last week when Appraiser Watch, its risk-based appraiser monitoring system, became fully operational.
"The Bush Administration is committed to helping more Americans buy homes - and keeping the homes they've bought," HUD Secretary Mel Martinez said. "Appraiser Watch is another tool that we're using to help more Americans to own their own homes by obtaining mortgages they can afford."
With Appraiser Watch, HUD's Federal Housing Administration will be better able to identify appraisers who either knowingly or unintentionally place homeowners at risk for losing their homes to foreclosure because of inflated valuations. Rising foreclosure rates also could jeopardize the FHA mortgage insurance fund, which is used by the government to reimburse lenders when homeowners are unable to make payments on government-guaranteed mortgages.
The new system, which relies on historical risk factors to help identify appraisers whose work will be reviewed by FHA staff, was first proposed in the Federal Register as a Notice of Proposed Rulemaking in July 2002. Based on industry comments to the initial proposal and internal testing, 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.
Included among the risk factors are an appraiser's association with mortgages with high default rates, and a high volume of appraisals on mortgage programs more likely to have high default rates, such as rehabilitation loans, loans for multi-unit and real estate-owned properties.
Under a former appraiser monitoring system, FHA field reviewed more than 30,000 appraisals from October 1997 through September 2001. These reviews eventually led to 30 appraisers - or .001 percent - being removed from the FHA Appraiser Roster for poor performance.
By contrast, as a result of using Appraiser Watch from October 2001 through September 2002, FHA identified some 1,900 appraisals for field review, and 97 appraisers were removed.
Appraiser Watch is the latest of several HUD initiatives designed to protect homebuyers from predatory lenders and practices. These practices include unaffordable repayment terms and other conditions that can result in a loss of equity, increased debt, default and even foreclosure. Other protective initiatives include:
- Neighborhood Watch Early Warning system is a web-based software that identifies high rates of default and claims in specific zip codes, and the lenders associated those defaults.
- Credit Watch Termination, identifies poorly performing mortgage lenders, advises marginal performers that they must improve to remain an approved lender, and terminates a lender's ability (at the branch level) from originating FHA-insured mortgages if it fails to improve. HUD may bar lenders from issuing FHA-insured mortgages if their default and claims rates on loans made within the last 24 months in a geographical area are 200 percent of the average rate for that area, and if their rate exceeds the national default and claim rate.
- HUD's latest round of housing counseling grants, which when soon awarded will provide some $2.7 million to agencies combating predatory lending.
HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities, creating affordable housing opportunities for low-income Americans, supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development as well as enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet or espanol.hud.gov.
Note to Editors: Additional information regarding predatory lending is available on HUD's website.