The Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, the Federal Reserve Board, Federal Deposit Insurance Corp., National Credit Union Administration, and the Federal Housing Finance Agency, issued a joint notice of proposed rulemaking implementing the quality control standards mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, related to automated valuation models (AVMs).
Section 1473(q) of the Dodd-Frank Act amended Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (Title XI) to add a new Section 1125 governing the use of AVMs in mortgage lending. AVMs are defined in Title XI as any computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer’s principal dwelling.
Section 1125 directs the agencies to issue regulations requiring that AVMs used by regulated institutions adhere to quality control standards designed to: (1) ensure a high level of confidence in the estimates the AVM produces; (2) protect against the manipulation of data; (3) seek to avoid conflicts of interest; and (4) require random sample testing and reviews.
The statute also permits the agencies to account for any other factor that they determine to be appropriate. The proposal would implement the statutorily required quality control factors and the agencies would exercise their statutory authority to add a fifth factor that would require regulated institutions using covered AVMs to adopt policies, practices, procedures, and control systems to ensure that their use of these AVMs complies with applicable nondiscrimination laws.
Under the proposal, the agencies would require institutions that engage in certain credit decisions or securitization determinations to adopt policies, practices, procedures, and control systems to ensure that AVMs used in these transactions to determine the value of mortgage collateral adhere to quality control standards designed to ensure a high level of confidence in the estimates produced by AVMs.
The opportunity for comments is open for 60 days following the NPRMs publication in the Federal Register.