Six federal regulatory agencies have 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.
The agencies involved are:
Consumer Financial Protection Bureau
Federal Deposit Insurance Corporation
Federal Housing Finance Agency
Federal Reserve Board
National Credit Union Administration
Office of the Comptroller of the Currency
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.
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
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. 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. It is also important that the AVMs 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.