Final Rule on Quality Control Standards for Automated Valuation Models

The federal banking regulators and the Consumer Financial Protection Bureau (CFPB) released their final rule on quality control standards for automated valuation models (AVMs). The final rule follows the general framework proposed by the regulators, which is taken directly from the Sec.1125 of the Dodd-Frank Wall Street Reform and Consumer Protection Act with the addition of a fourth criteria for fair housing.

The final rule applies to institutions that use AVMs for credit determinations and mortgage securitization to adopt policies, practices, procedures, and control systems. The final rule is 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 final rule does make clarifications and adjustments to the proposed rule that reflect input from the public. NAR submitted a comment on the proposed rule. The final rule reflects some of NAR’s recommendations:

• NAR is pleased that the government-sponsored enterprises (GSEs) are covered under the rule as we recommended in our August 2023 letter.
• NAR also agrees that appraisers should be exempt from the rule.
• NAR asked that the agencies make clear in the rule whether a credit event would fall under the rule, however, the agencies did not find it necessary to provide any additional clarification regarding how the rule applies to credit decisions as they feel that the definition of “credit decision” is broad enough to cover assumptions. (page 16)
• NAR asked for guidance from the U.S. Department of Housing & Urban Development (HUD) or legal precedent to help fill the void of legal clarity around practices in the AVM industry that may violate the Fair Housing Act. Although the rule requires quality control standards designed to “comply with applicable nondiscrimination laws,” the regulators state that many of the individual regulators “have already provided guidance on… nondiscrimination” (page 84) and have not issued additional guidance.
• NAR also asked for the GSEs to provide consumers with any valuation they base a waiver on, since it is used in the credit decision. The regulators provide support for this request but note that it is beyond the scope of this rule. Per pages 24 and 25 of the rule,

Regarding providing to consumers copies of valuations used in connection with appraisal waiver decisions, the comment is on a matter outside the scope of this rulemaking. The agencies also note that the CFPB’s rules in Regulation B implementing ECOA generally require creditors to provide applicants for first-lien loans on a dwelling with copies of written valuations developed in connection with an application. 'While some AVMs may use proprietary methods, the [2013 ECOA Valuations Final Rule] does not require the disclosure of these methods per se; rather, the [2013 ECOA Valuations Final Rule] requires disclosure of the written valuations developed by the AVMs which are provided to the creditors.'