Mortgage originators, servicers, and secondary market participants should take note that the October 1 implementation date for the Interagency AVM Quality Control Rule (the “Rule”) is fast approaching.
What Happened?
As mandated by the Dodd-Frank Act, on June 20, 2024, the Consumer Financial Protection Bureau, Office of the Comptroller of the Currency, Board of Governors of the Federal Reserve Board, Federal Deposit Insurance Corporation, National Credit Union Administration and the Federal Housing Finance Agency (collectively, the Agencies) adopted a rule addressing the use of AVMs in mortgage origination and secondary market transactions. At a high level, the Rule (mirroring the language of Section 1125 of FIRREA) requires that mortgage originators and secondary market issuers that engage in credit decisions or covered securitization determinations, themselves or through or in cooperation with a third-party or affiliate, must adopt and maintain policies, practices, procedures, and control systems to ensure that automated valuation models used in [subject] transactions adhere to quality control standards designed to:
- Ensure a high level of confidence in the estimates produced;
- Protect against the manipulation of data;
- Seek to avoid conflicts of interest;
- Require random sampling testing and reviews; and
- Comply with applicable nondiscrimination laws.
Why Does it Matter?
Please see our prior blog post for a more fulsome summary of the Rule.
What To Do Now?
With implementation fast approaching, we have been fielding a lot of implementation questions, such as:
- How does the rule apply to secondary market issuers, sponsors, or underwriters?
- Do I need to comply if I rely on a GSE’s property inspection waiver?
- More broadly, what do I need to do to comply given that the Rule is not prescriptive, but provides entities with flexibility to set quality control standards for AVMs based on the size, complexity, and risk profile of the entity and the transactions covered by the Rule?
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