Agencies finalize rule on automated valuation models

Federal financial services regulators issued a final rule to implement quality control standards for automated valuation models, or AVMs, which mortgage lenders use to value real estate collateral.

Background: AVMs are used as part of the real estate valuation process and are driven in part by advances in database and modeling technology and the availability of larger property datasets.

New Rule: The interagency rule requires institutions that engage in covered transactions to adopt systems to ensure AVMs adhere to quality control standards designed to ensure the credibility and integrity of valuations. The agencies want to allow the industry to design and implement systems to determine if an AVM meets these standards.

Responsibility Shift: In a comment letter last year, ICBA called on federal regulators to avoid disincentivizing the use of AVMs by shifting responsibility to originators to assess AVMs. ICBA said that decreasing the use of AVMs would further disincentivize mortgage lending in rural areas, where AVMs can be utilized as more cost-effective, efficient, and accurate options to help value collateral and manage risk.

Previous Comments: In a previous comment letter to the Consumer Financial Protection Bureau, ICBA said regulators should avoid burdensome rules on AVMs, particularly for the community banks using these models to make underwriting decisions and find comparable values in rural areas.