The FDIC Board is considering today a final rule to implement the requirements in section 1473(q) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act added new requirements related to the use of automated valuation models (AVMs) in valuing real estate collateral securing mortgage loans.
To that end, the FDIC, along with the Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve System, National Credit Union Administration, Federal Housing Finance Agency, and Consumer Financial Protection Bureau (the agencies), are finalizing a rule for AVMs used in certain credit decisions or securitization determinations (covered AVMs) that requires covered AVMs to adhere to quality control standards designed to:
- ensure a high level of confidence in the estimates produced by AVMs;
- protect against the manipulation of data;
- seek to avoid conflicts of interest;
- require random sample testing and reviews; and
- comply with applicable nondiscrimination laws.
In today’s mortgage market, AVMs are being used more and more by mortgage originators and secondary market issuers in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling. Purchasing a home remains most consumers’ largest financial investment during their lifetime. While AVMs have the potential to contribute to lower costs and shorter turnaround times in the performance of property valuations, it is important for institutions to take appropriate steps in implementing the quality control standards to ensure the credibility and integrity of the valuations produced by AVMs.
By issuing the final rule, the agencies are also taking an important step forward in helping to prevent discrimination in the valuation process. The final rule adopts a quality control factor requiring that covered AVMs comply with applicable nondiscrimination laws. Existing nondiscrimination laws already apply to appraisals and the use of AVMs, and institutions have a preexisting obligation to comply with all Federal laws, including Federal nondiscrimination laws. Specifying a nondiscrimination quality control factor in the final rule creates an independent requirement for mortgage originators and secondary market issuers to establish policies, practices, procedures, and control systems to ensure that AVMs used in connection with making credit decisions or covered securitization determinations adhere to quality control standards designed to comply with applicable nondiscrimination laws. This new requirement would further mitigate potential discrimination risk in lenders’ use of AVMs, improving the credibility and integrity of the valuations produced by AVMs.
I am supportive of the rule, and thank FDIC staff for their thoughtful work on this final rule.