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6 Fed Agencies Plan Automated Appraisal Changes

Home inspectors’ automated valuation models (AVMs) need quality-control to keep historic discrimination out, the agencies say. They’re currently accepting comments.

WASHINGTON, D.C. – Six federal regulatory agencies issued a request for public comment on a proposed rule they say will “ensure the credibility and integrity of models used in real estate valuations.”

The proposed rule – Quality Control Standards for Automated Valuation Models Notice of Proposed Rulemaking – would specifically create quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers to value real estate used as collateral when securing a mortgage loan. The proposed rule is now accepting comments before it’s finalized and/or changed.

Agencies seeking comment

  • Department of the Treasury
  • Federal Reserve System
  • Federal Deposit Insurance Corporation
  • National Credit Union Administration
  • Consumer Financial Protection Bureau
  • Federal Housing Finance Agency

Under the proposal, institutions using AVMs must “adopt policies, practices, procedures and control systems to ensure that AVMs adhere to quality control standards.” The agencies say those standards would “ensure the credibility and integrity of valuations.”

All six agencies released a similar media announcement claiming that the ultimate goal of rulemaking is to ensure a high level of confidence in AVM estimates. Once established, the new rules should help:

  • Limit data manipulation
  • Avoid conflicts of interest
  • Find weak spots by requiring random sample testing and reviews
  • Promote compliance with nondiscrimination laws

AVMs are part of the real estate valuation process, driven in part by advances in database and modeling technology and the availability of larger property datasets. While advances in AVM technology and data availability have the potential to contribute to lower costs and reduce loan cycle times, institutions using AVMs must take steps to ensure the credibility and integrity of their valuations. Since historic home sale data is used as a basis in most AVM models, there’s a danger that historic patterns of discrimination will become part of future AVM valuations.

Comments must be received within 60 days of the proposed rule’s publication in the Federal Register. Instructions for submitting comments are included in the propose rule link.

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