HUD has not imposed a declining markets policy, unlike FNMA and FHLMC. However, the individual bank may have put thier own policy in place. Many lenders are lowering the appraised values in order to minimize risk.
HUD did impose additional collateral assessment practices for "high balance" loans (over $417,000) in declining housing markets. This new policy was established in April of 2008, HUD Mortgagee letter ML2008-09
Please feel free to contact me if I can be of assistance to you. I am an FHA Direct Endorsed underwriter, and have been with United Mortgage Corp since 1992. We are HUD and USDA lenders.
Have a good day.
Jacqueline Pulcano, SVP
United Mortgage Corp
A way to ensure that someone at that bank isn't trying to snow you is to do the following: ask him/her to put that statement in writing, ask him/her to sign and certify that statement, tell him/her that you're going to verify that statement with one of their competitors, and s/he will have committed purgery if s/he didn't tell you the truth. If s/he is unwilling to give you a signed and certified, written statement, then ask to see a copy of that policy in writing. If s/he is unwilling/unable to produce that policy in writing, then you'll know s/he is lying, and then move on.
Yes, some banks are simply reducing appraised values by 5%, due to their logic that the market is declining, so they want to protect themselves. This is something I saw a lot in late 2007/early 2008, but have not seen it lately. This began when Fannie Mae started listing what it considered to be distressed areas. However, even though this practice has ended, I would not be surprised to learn some banks are still performing this reduction. Banks have lost a lot of money lately, and many have gone under, so this is a form of risk management for them.
My understanding for lowering an appraisal is for homeowners apply for a loan mortification; a way to safe the homeowner from going into foreclosure. There is a lot of confusing information going around, double and triple check.