On July 17, 2024, the CFPB, FDIC, FHFA, FRB, NCUA, and OCC jointly 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. 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.
According to the Federal Reserve’s press release, the final rule 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; and
Comply with nondiscrimination laws.
The use of AVMs have increased as part of the real estate valuation process in the last few years. According to the agencies, 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 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.
The Federal Reserve Board’s press release can be found here.
The final rule can be found here.