Agencies issue final AVM rule

Six federal agencies — The CFPB, FDIC, FHFA, Federal Reserve Board, NCUA, and OCC — have jointly announced their issuance of a final rule required by the Dodd-Frank Act and designed to help ensure the credibility and integrity of models used in valuations for certain mortgages secured by a consumer's principal dwelling. In particular, the rule will implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers in valuing those homes. The final rule is substantially similar to the proposal issued in June 2023.

Under the final rule, the agencies will require institutions that engage in certain transactions secured by a consumer's principal dwelling to adopt policies, practices, procedures, and control systems designed to:

• ensure a high level of confidence in estimates
• protect against data manipulation
• seek to avoid conflicts of interest
• require random sample testing and reviews
• comply with nondiscrimination laws

The agencies said that, driven in part by advances in database and modeling technology and the availability of larger property datasets, AVMs are being used with increasing frequency as part of the real estate valuation process. While advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of the valuations produced. It is also important that the AVMs institutions use adhere to quality control standards designed to comply with applicable nondiscrimination laws.

The CFPB and the OCC previously announced their approvals of the rule, which will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register (if it is published by September 30, it will become effective October 1, 2025).