Agencies request comment on quality control standards for automated valuation models proposed rule

Several U.S. banking regulators, including the Board of Governors of the Federal Reserve System, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency, have announced an upcoming consultation as regards the use of automated valuation models (AVMs) in assessing the value of collaterals involving mortgages. Specifically, the regulators propose to mandate 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.
It shall be noted that the regulators refrain from setting out any more detailed requirements in this context so as to allow a risk-based and proportionate approach by each institutions when designing their new policies and procedures. The approach shall, so the regulators, take into consideration an entity’s size, complexity, and risk, although it is entirely up to an institution to determine the contents and scope of the new policies.
To conclude, it shall also be noted that the use of automated valuation models for purposes of monitoring the quality or performance of mortgage or mortgage-backed securities in the lifetime of a loan or securitization is explicitly excluded from the above noted policy requirements.