On June 1, 2023, the Consumer Financial Protection Bureau (“CFPB”), Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Federal Housing Finance Agency, National Credit Union Administration, and Office of the Comptroller of the Currency (collectively, the “agencies”) published a joint notice of proposed rulemaking (“NPR”) requesting public comment on rulemaking that would implement quality control standards for automated valuation models (“AVMs”).
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (“title XI”) by adding new Section 1125, related to the use of AVMs. An AVM is defined as “any computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.” The proposed rule is only applicable to “covered AVMs” used to determine collateral value per the definition and does not apply to other uses of AVMs such as portfolio monitoring.
Under Section 1125, the agencies are directed to promulgate regulations which are designed to “(1) ensure a high level of confidence in the estimates produced by AVMs; (2) protect against the manipulation of data; (3) seek to avoid conflicts of interest; (4) require random sample testing and reviews; and (5) comply with applicable nondiscrimination laws.” With the proposed rule, the agencies would direct institutions that use AVMs in making certain credit decisions or securitization determinations to adopt policies, practices, procedures, and control systems to ensure that the AVMs meet high quality control standards.
The proposed rule does not set specific requirements for how mortgage originators and secondary market issuers should structure their policies, procedures, and control systems. Notably, the proposed rule provides no guidance on how institutions should address bias or discrimination in AVMs, and instead states that institutions should have flexibility to implement their own practices based on their size and how they use covered AVMs.
The proposed rule provides 37 questions for comment. Comments will be accepted for 60 days after the date of publication in the Federal Register. To view the proposed rule, Quality Control Standards for Automated Valuation Models, clear here.
