Banker's Compliance Consulting Blog

Quality Control Standards for Automated Valuation Models

Written by Amy Kudlacek | Jun 22, 2023 6:56:40 PM

The OCC, Federal Reserve, FDIC, NCUA, CFPB, and Federal Housing Finance Agency have issued a proposed Rule outlining quality control standards for automated valuation models (AVMs), as required under The Dodd-Frank Act.

The use of AVMs is on the rise and, while their use brings the potential to reduce human biases, AVMs can also introduce risk when it comes to potential discrimination.

This proposal would require originators and secondary market issuers to have policies, procedures, practices and controls in place for AVMs used in credit decisions or securitization determinations in order to:

(a) Ensure a high level of confidence in the estimates produced;

 

(b) Protect against the manipulation of data;

 

(c) Avoid conflicts of interest;

 

(d) Require random sample testing and reviews; and

 

(e) Comply with applicable nondiscrimination laws.

 

These standards would apply when an AVM is used in connection with a credit decision or a determination on whether a loan will be securitized. AVMs used only to review an appraisal; however, would not be subject to the Rule. Comments are due 60 days after the Proposal is published in the Federal Register.

Published
2023/06/22