A rule proposed in early June that recognizes the increasing frequency of use of automated valuation models (AVMs) by mortgage lenders in determining the value of property is out for comment until Aug. 21, according to a notice in Wednesday’s Federal Register.
According to the agencies (the Consumer Financial Protection Bureau [CFPB], Federal Deposit Insurance Corp. [FDIC], Federal Reserve, National Credit Union Administration [NCUA], and the Office of the Comptroller of the Currency [OCC]), along with the Federal Housing Finance Agency (FHFA), the use of AVMs has been spurred by in part by advances in database and modeling technology and the availability of larger property datasets.
The proposal points to such government-sponsored enterprises (GSEs) as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), which may use proprietary AVMs in their collateral valuation processes, as examples of growing use of the technology.
The proposal would put into effect quality control standards mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The statute requires the standards for use of the AVMs by mortgage originators and secondary market issuers in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling.
According to the agencies, they would require banks, credit unions, and other institutions that make certain credit decisions or securitization determinations to “adopt policies, practices, procedures, and control systems” over the models.
The agencies indicated that those actions are necessary to ensure that the AVMs adhere to quality control standards designed to ensure: a high level of confidence in the estimates produced by AVMs; protection against the manipulation of data; avoidance of conflicts of interest; random sample testing and reviews; and compliance with applicable nondiscrimination laws.
Reg lookup: Quality Control Standards for Automated Valuation Models