Banking Agencies Propose Rule on Quality Control Standards for Automated Valuation Models

The banking agencies (the Office of the Comptroller of the Currency, the Federal Reserve Board, FDIC, National Credit Union Administration, CFPB and Federal Housing Finance Agency, together the "Agencies") proposed a rule that would require mortgage originators and secondary market issuers to "adopt policies, practices, procedures, and control systems to ensure that automated valuation models used in certain credit decisions or covered securitization determinations adhere to quality control standards."

Under the proposed rule, mortgage originators and secondary market issuers would have to comply with quality control standards when using automated valuation models ("AVMs") to determine the collateral worth of a mortgage of a consumer's principal dwelling. Institutions would be required to enforce quality control standards that (i) ensure a "high level of confidence" in AVM estimates, (ii) prevent manipulation of data and conflicts of interest, (iii) mandate random sample testing and reviews of the standards and (iv) comply with nondiscrimination laws.

The Agencies said that the proposal includes guidance on establishing policies and procedures to ensure the "accuracy, reliability, and independence of an AVM," but that the proposed rule does not prescribe specific requirements. The Agencies stated that the proposal allows for institutions to set quality controls proportionate to the size and complexity of transactions. Further, the Agencies stated that the proposed rule allows for institutions to refine their policies as modeling technologies continue to develop.

Comments on the proposal must be submitted within 60 days of publication in the Federal Register.