Rallies were planned for today in a dozen U.S. cities to protest Department of Housing and Urban Development policies that a consumer group blames for a sharp rise in foreclosures.

Changes in the department's FHA program are to blame for an increase of about 25% in foreclosures on FHA loans in the last two years, according to the National Training and Information Center, Chicago, which organized the protests.

A 1996 policy change that allows lenders to choose their own appraisers when writing FHA loans is leading to faulty and inflated appraisals, the group says. The community group wants mandatory inspections of FHA-insured properties-a move it says is being blocked by mortgage lenders and Realtors.

The group also says a recommendation that lenders try to work with defaulted borrowers is ineffective because lenders have no incentive to work out these 100% insured loans.

"Abandoned buildings and families with no homes and ruined credit are part of the program at HUD under Secretary Andrew Cuomo," said Gale Cincotta, executive director of the group.

FHA borrowers are buying substandard homes, then defaulting on loans when they are forced to spend money on unexpected repairs, the group said.

HUD contends that the increase in FHA foreclosure rates-from 71,500 in 1997 to 76,000 in 1998-stems from an unsuccessful program of adjustable- rate loans in California.

The change in the FHA's appraisal policy was "a congressional mandate," said William Apgar, assistant secretary for housing, and was not a plan that HUD "wanted or advocated."

Rather than reverting to the previous policy, HUD is advocating more training for appraisers and stricter fines, Mr. Apgar said. Lenders are ultimately responsible for the quality of the appraisals, Mr. Apgar said, adding that HUD has doubled the staff who monitor lenders.

Requiring an inspection is "a totally bogus issue," Mr. Apgar said. "All our literature and outreach programs remind folks of the value of getting an inspection," he said.

The National Association of Realtors is opposed to mandatory inspection because "there aren't enough inspectors in the country," a spokesman for the group said.

The inspection issue has been debated before. In a homeownership bill introduced last year, Rep. Rick Lazio, R., N.Y., proposed mandatory inspection homes financed by FHA loans.

The bill was passed by the House but did not reach the Senate floor. Banking subcommittee staff members say they are trying to persuade Rep. Lazio to reintroduce the bill.

The FHA's loss-mitigation program is working, Mr. Apgar contends, and HUD is providing additional training and incentive to lenders who are "reluctant" to work out loans.

"We have the legal authority to penalize lenders three times the loan amount" if they refuse to work with borrowers, Mr. Apgar said.

The consumers group is advocating FHA loan default management patterned after a Pennsylvania state program in which borrowers are given a loan to keep their mortgages current.

Rep. Luis Guitierrez, D-Ill., will reintroduce a bill in February to propose such a program, said Elizabeth Ryan, who heads the consumer group's housing staff.

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