Agencies Adopt Rule on the Use of "Automated Valuation Models" in Home Appraisals
Banking regulators adopted a final rule to implement quality control standards on the use of automated valuation models ("AVMs") "by mortgage originators and secondary market issuers [when] determining the collateral worth of a mortgage secured by a consumer's principal dwelling."
The final rule, as adopted by the OCC, Treasury, Federal Reserve Board, FDIC, National Credit Union Administration, CFPB and the Federal Housing Finance Agency requires "supervised mortgage originators and secondary market issuers" involved in credit or covered securitization decisions "to adopt and maintain policies, practices, procedures, and control systems" to ensure that AVMs and other forms of artificial intelligence used to estimate the value of a home adhere to quality control standards. The standards are intended to (i) ensure confidence in the estimates; (ii) protect against the manipulation of data; (iii) protect against conflicts of interest; and (iv) enable compliance with applicable discrimination laws."
The rule becomes effective 12 months after publication in the Federal Register.
Commentary
As to the CFPB, the new rule represents part of a broad effort to regulate the application of AI in the financial sector, eliminating special legal immunities for AI firms, and reinforcing the application of existing consumer protection and fair lending laws. The CFPB continues to closely monitor the rapidly evolving technology sector, including tech often marketed as AI, to ensure appropriate consumer protections. As part of these efforts, the CFPB has issued guidance and reports "to make clear that there is no 'fancy technology' exemption in our nation's consumer financial protection and fair lending laws." Notably, the CFPB is adding more agency capabilities, including increased staffing, to address new and emerging technologies.