Six U.S. regulators announced on Wednesday that they have approved a final rule that requires mortgage originators and secondary market issuers to impose quality control standards for their automated valuation models (AVMs).
In June, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) announced their approval of the final rule. They were followed by the Federal Housing Finance Agency (FHFA), the Consumer Financial Protection Bureau (CFPB), the Federal Reserve System and the National Credit Union Administration (NCUA).
AVMs deploy technology to value the properties used as collateral to secure mortgages. The rules intend to address the higher costs tied to appraiser shortages during the post-pandemic refinance boom and concerns about bias in home valuations.
“While advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of the valuations produced,” the regulators said in a joint statement.
Besides ensuring a high level of confidence in the estimates produced by AVMs, the rules aim to protect these services against data manipulation and seek to avoid conflicts of interest.
Mortgage lenders and investors must apply random sample testing and reviews to their AVMs, and the models must comply with applicable nondiscrimination laws.
The final rule is similar to the proposal issued in June 2023, which received about 50 comments from stakeholders such as financial institutions and real estate and mortgage trade associations.
When voting in favor of the rule, FDIC Chairman Martin J. Gruenberg said its specification of a “nondiscrimination quality control factor” would mitigate “potential discrimination risk in lenders’ use of AVMs, improving the credibility and integrity of the valuations produced by AVMs.”
Meanwhile, the OCC said the rulemaking “supports Acting Comptroller of the Currency Michael J. Hsu’s priority to reduce inequality and elevate fairness in banking.”
