Agencies Release Proposed Rule on Quality Control Standards for AVMs
The Office of the Comptroller of the Currency, the Federal Reserve, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Consumer Financial Protection Bureau and the Federal Housing Finance Agency on June 1 released a proposed rule for automated valuation models.
The rule would implement quality control standards that are mandated by Section 1125 of the Dodd-Frank Act for the use of AVMs by mortgage originators and secondary market issuers to value single-family and one- to four-unit multifamily homes.
This proposed rule is the last to be released following mandates established by the Dodd-Frank Act of 2010, and is a part of the PAVE Action Plan released last year. The rule would require that quality control standards apply when AVMs are used to make determinations of collateral value as opposed to other uses, such as monitoring value over time or validations.
The proposal would require covered Institutions to adopt policies, practices, procedures and control systems to ensure that AVMs used in the covered transactions adhere to quality control standards in order to:
- Ensure high-level confidence in estimates,
- Protect against data manipulation,
- Avoid conflicts of interest,
- Provide random sample testing and reviews, and
- Comply with applicable nondiscrimination laws.
The agencies propose to allow each covered institution the flexibility to create its own quality control standards that are appropriate for its size and the risk and complexity of its covered transactions. The proposed rule leans heavily on existing guidance from the Interagency Appraisal and Evaluation Guidelines issued in 2010. The IAEG includes a section on AVMs that the agencies are proposing to adopt as the base quality control standards. Additionally, the agencies are proposing that an antidiscrimination statement be included with the quality control standards.
The Appraisal Institute is preparing comments on the proposed rule.