Regulatory Alerts2024-07-22 | FIL-43-2024Final Rule on Real Estate Valuations: Quality Control Standards for Automated Valuation Models
The FDIC, Federal Reserve, OCC, NCUA, FHFA, and CFPB jointly issued a Final Rule implementing Dodd-Frank Act quality control standards for automated valuation models used by mortgage originators and secondary market issuers to appraise consumer principal dwellings. The rule mandates that regulated institutions adopt policies, procedures, and control systems ensuring these models meet five core standards: high estimation confidence, data manipulation protection, conflict of interest mitigation, random sample testing, and strict nondiscrimination compliance. By explicitly incorporating a nondiscrimination factor, the regulation addresses potential safety and soundness risks while establishing an effective date one calendar quarter after Federal Register publication.
Laws and Regulations
July 22, 2024
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Summary: The Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Housing Finance Agency, and the Consumer Financial Protection Bureau (the agencies) jointly issued a Final Rule to implement the quality control standards mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) for the use of automated valuation models (AVMs) by mortgage originators and secondary market issuers in determining the collateral worth of a mortgage secured by a consumer’s principal dwelling. Statement of Applicability: The contents of, and material referenced in, this FIL apply to all FDIC-supervised financial institutions. Highlights: Covered AVMs must adhere to quality control standards designed to: (1) ensure a high level of confidence in the estimates produced by AVMs; (2) protect against manipulation of data; (3) seek to avoid conflicts of interest; (4) require random sample testing and reviews; and (5) comply with applicable nondiscrimination laws. The final rule requires institutions that engage in certain credit decisions or covered 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 meet the five previously specified quality control factors. A nondiscrimination quality control factor creates an independent requirement for institutions to mitigate against discrimination risk in their use of AVMs, thereby increasing confidence in the estimates.
In addition, specifying a nondiscrimination quality control factor could help protect against potential safety and soundness risks, such as operational, legal, and compliance risks, associated with failure to comply with nondiscrimination laws. The final rule adopts the proposed rule largely as proposed, with the only substantive amendment being the inclusion of the full text of the TILA definition of "mortgage originator” with several technical revisions. The final rule will have an effective date the first day of the calendar quarter following one year after publication in the Federal Register .
FIL-43-2024
Attachment(s)
Part 323 of the FDIC Rules and Regulations
Interagency Appraisal and Evaluation Guidelines
Related Topics
Appraisals and Other Valuation Products
Contact(s)
Division of Depositor and Consumer Protection
Division of Risk Management Supervision
Legal Division