On June 20, the CFPB, OCC, Fed, FDIC, NCUA and FHFA (the financial services regulators) issued a final rule implementing new provisions governing the use of automated valuation models (AVMs), which are commonly used by mortgage originators and secondary-market issuers to estimate a property’s value for loan underwriting and portfolio monitoring. The rule, which was proposed in June 2023 (covered by InfoBytes here), had mortgage servicers adopt policies and procedures ensuring that AVMs operate with certain quality control standards, designed to operate with a high level of confidence. These estimates should be produced to protect against data manipulation and avoid conflicts of interest. The rule included requirements to conduct random sampling testing and reviews, and to comply with nondiscrimination laws. The financial services regulators noted that despite comments that lending institutions have little control over how AVMs were created, the rule “will allow the implementation of the standards to evolve along with changes in AVM technology and minimize compliance costs.” 

In announcing the final rule, FDIC Chairman Martin Gruenberg emphasized that the rule created an independent requirement “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,” and that the “new requirement would further mitigate potential discrimination risk in lenders’ use of AVMs.” In its announcement, the OCC stated that the rule “supports Acting Comptroller of the Currency Michael J. Hsu’s priority to reduce inequality and elevate fairness in banking.”

The final rule will go into effect the first day of the calendar quarter 12 months after its publication in the Federal Register.