Six federal regulatory agencies – the Consumer Financial Protection Bureau, Federal Deposit Insurance Corp., Federal Housing Finance Agency, Federal Reserve Board, National Credit Union Administration and the Office of the Comptroller of the Currency – issued a final rule, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, designed to help ensure the credibility and integrity of models used in valuations for certain mortgages secured by a consumer’s principal dwelling.
In particular, the rule will implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers in valuing those homes. The final rule is substantially similar to the proposal issued in June 2023, according to the agencies.
Under the final rule, the agencies will require institutions that engage in certain transactions secured by a consumer’s principal dwelling to adopt policies, practices, procedures, and control systems designed to:
- ensure a high level of confidence in estimates;
- protect against data manipulation;
- seek to avoid conflicts of interest;
- require random sample testing and reviews; and
- comply with nondiscrimination laws.
Driven in part by advances in database and modeling technology and the availability of larger property datasets, AVMs are being used with increasing frequency as part of the real estate valuation process, the agencies noted.
While advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process, the agencies said it is important institutions using AVMs take appropriate steps to ensure the credibility and integrity of the valuations produced. It is also important the AVMs that institutions use adhere to quality control standards designed to comply with applicable nondiscrimination laws.
The final rule will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register.
Valuation Review will stay on this news and soon bring you an in-depth story with comments and insight from the appraisal profession as well as the agencies involved in this rule.