Quality Control Standards for Automated Valuation Models

As previously announced on June 1, 2023, several U.S. banking regulators, including the Board of Governors of the Federal Reserve System (FED), the Office of the Comptroller of the Currency (OCC), and others have now published in the Federal Register a new consultation in connection with the use of automated valuation models (AVMs) when assessing the value of collaterals involving mortgages.
Specifically, the regulators propose to require financial institutions and other firms using AVMs to assess the value of the underlying property (collateral) to make credit decisions over lenders or to assess the value of such property in connection with covered securitization determinations regarding a mortgage or a mortgage-backed security to implement new quality control standards for the use of such AVMs. In detail, entities would have to
– implement adequate policies and procedures to monitor AVMs so as to ensure that
– the value produced by AVMs enjoys a „high level of confidence“;
– the AVM is protected against any data manipulation; and
– the AVM does not discriminate against any borrowers or any other party involved in a mortgage or securitization determination.
– regularly perform sample testing of the outcomes AVMs produce and review the AVMs altogether; and
– implement adequate policies to avoid conflicts of interest in the use of AVMs.