Mortgage lenders and secondary market issuers must implement quality control standards for the automated valuation models (AVMs) they use in valuing homes, as per a set of rules finalized by six federal regulatory agencies including the Federal Housing Finance Agency and the Consumer Financial Protection Bureau.
More specifically, mortgage lenders must adopt policies, practices, procedures, and control systems designed to ensure a high level of confidence in AVM estimates.
In addition they must protect against data manipulation; avoid conflicts of interest; require random sample testing and reviews; and comply with nondiscrimination laws when utilizing AVMs.
The final rule, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, is designed to help ensure the credibility and integrity of AVMs, the FHFA says in a release.
The final rule is substantially similar to an earlier proposal issued in June 2023.
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 FHFA says.
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 agency says.
The final rule will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register.
Photo: Bill Oxford