A proposed Department of Housing and Urban Development rule aimed at eliminating practices that disadvantage minority low- or moderate-income home buyers would actually scare off lenders from FHA mortgages, some lenders say.

The proposed rule to implement section 330 of the National Affordable Housing Act, is intended to eliminate higher charges for smaller FHA loans in designated areas.

The Mortgage Bankers Association of America said losses would be greater on the smaller loans. "We wanted [HUD] to take into account the fact that the income [from] a $100,000 loan is a lot more than that of a $30,000 loan," said Brian Chappelle, staff vice president. "So when you take the costs that are roughly the same and subtract them from the different levels of income, you come up with a big difference. The $30,000 loan loses maybe $1,000 per loan while the $100,000 loan loses ... just $100 in the originauon."

"Although this ... change appears to be a noble and sincere attempt to protect the consumer from paying high costs to acquire a home loan, it will most likely not accomplish that goal," said Douglas F. Long of Pinnacle Financial Corp., Orlando, Fla., in written comments to HUD. The comment period ends Sept. 13.

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