Multiple Agencies Request Comment on Proposed Rule for AVM Quality Control
On June 1, 2023, six federal regulatory agencies requested public comment on a proposed rule that would implement quality control standards for mortgage originators and secondary market issuers using automated valuation models (AVMs) when valuing real estate collateral securing mortgage loans. The agencies involved include the Federal Reserve, FDIC, NCUA, CFPB, FHFA, and OCC.
The agencies acknowledged advances in AVM technology and data availability could contribute to lower costs and shorter turnarounds, but the agencies want institutions using AVMs to take steps to ensure the integrity and credibility of the valuations. The quality control standards proposed in the rule would only apply to AVMs used in connection with certain credit decisions or covered securitization determinations regarding a mortgage, and it does not cover AVMs used by certified or licensed appraisers when developing appraisals. Additionally, the proposed rule does not apply to AVMs used for monitoring value over time or validating previously completed valuations.
The proposed rule would require mortgage originators and secondary market issuers to implement policies, practices, procedures, and control systems to ensure AVMs adhere to quality control standards, but it would not set specific requirements for how companies structure policies, practices, procedures, and control systems. The quality control standards should be designed to: (i) ensure a high level of confidence in the estimates produced by AVMs; (ii) protect against data manipulation; (iii) avoid conflicts of interest; (iv) require random sample testing and reviews; and (v) comply with applicable nondiscrimination laws. The proposed rule is meant to provide institutions with the flexibility to set AVM quality controls as appropriate based on institution size and the risk or complexity of transactions covered by the rule. Institutions will also be able to adjust their policies as technology advances.
Comments regarding this proposal must be submitted by July 31, 2023.
