APPRAISAL PROPOSAL MAY HURT FIRST-TIME BUYERS.

Byline: GREGORY J. WILCOX Real Estate

Federal housing regulators want to implement a new rule that would make lenders more accountable for appraisals tied to FHA-insured home loans.

And the banking industry isn't happy about it either, claiming it could reduce the financing options for first-time and minority buyers.

The proposal from the U.S. Department of Housing and Urban Development would make lenders act to enforce appraisal quality. It is being done, the agency said, as part of its effort to protect homebuyers from predatory lending practices.

This happens when buyers become unwitting victims of lenders, sellers and appraisers, often working together. The homebuyers either purchase homes with sales prices far in excess of the fair market value, or are substantially overcharged for costs associated with obtaining a mortgage.

``The Bush administration is doing everything we can to protect homebuyers, particularly minorities, from unscrupulous predatory lending practices,'' HUD Secretary Mel Martinez said in a statement. ``Predatory lending has no place in the FHA market, subprime market or any real estate transaction.''

HUD says the rule just strengthens regulations concerning the responsibilities of lenders in the selection of appraisers to perform appraisal on properties that will be security for FHA insured mortgages. It also helps assure that homebuyers receive accurate statements of appraised values on homes they purchase using FHA mortgage insurance.

A coalition of bankers groups maintain that the action is heavy-handed and unnecessary.

They fired off a letter reminding regulators that safeguards are already in place.

Tim Doyle, spokesman for the Mortgage Bankers Association of America, characterized the rule as a ``disincentive'' to lenders to offer the FHA-backed product.

``The way it is written imposes a great amount of risk on the lender in regard to the quality of the appraisal,'' he said. ``The FHA is overstepping their authority.''

And that could be bad news for first-time and minority buyers, he said.

This group makes up about 15 percent of the purchase market. But FHA-insured loans are used by 80 percent of first-time purchasers and 42 percent of minority borrowers.

``It's a very important segment of the market,'' he said.

Naturally, regulators dispute the banking industry claims. And it is not yet known when the rule could be implemented, said HUD spokesman Lemar Wooley.

Officials are going over written comments on the proposed change and will have a final draft of the rule later in the year.