Agencies Seek Comments on Proposed AVM Reliability, Integrity Rules

Six federal agencies have asked the public for comment on newly proposed rules aimed at “ensuring the reliability and integrity of models used in property valuations.”

The proposed rule would also introduce quality control standards governing the use of automated valuation models (AVMs) used by mortgage originators and secondary market issuers in valuing mortgages.

Agencies involved include: Federal Housing Finance Agency; of Consumer Financial Protection Bureau; of National Credit Union Administration; of Federal Deposit Insurance Corporation; of U.S. Treasury Department; and the federal reserve system.

“Under this proposal, the Agency will require institutions engaged in covered transactions to follow policies, practices and procedures to ensure that AVM adheres to quality control standards designed to ensure the reliability and integrity of its assessments. , and adopt a management system,” the statement said.

The aim, according to the announcement, is to create a set of standards that will make AVMs more reliable to use.

“The proposed standard is designed to ensure a high degree of confidence in the estimates produced by AVMs. It helps protect against data manipulation. We strive to avoid conflicts of interest. Sample testing and review are required to facilitate compliance with applicable anti-discrimination laws,” the agency said.

In a blog post released alongside the joint announcement, CFPB Director Rohit Chopra said AVMs could cause significant harm if the algorithms were inaccurate or biased.

“It may seem that if machines process numbers, they can remove human bias, but they can’t,” Chopra said. “Automated models can embed human biases that should be corrected based on the data they are fed and the algorithms they use. And the design and development of models and algorithms reflect developer biases and blind spots.” may be.”

This can make bias removal more difficult, as algorithms can “mask biased inputs and designs with a false mantle of objectivity,” he said.

According to the announcement, ensuring standards are in place will make these tools more comfortable to use and ultimately reduce the costs associated with evaluations.

“Although advances in AVM technology and data availability may contribute to lower costs and faster loan cycle times, financial institutions using AVMs need adequate resources to ensure the reliability and integrity of their valuations. It is important to take action,” the agencies said. “It is also important that institutions using AVMs adhere to quality control standards designed to comply with applicable anti-discrimination laws.”

According to the proposed regulations, these quality control standards apply only to the use of AVMs in determining collateral values.

“The proposed rule would enforce this law by applying quality control standards when AVMs are used to make collateral value determinations, and to monitor value over time and This is in contrast to other uses such as verification of completed assessments.” State.

Other uses of AVMs, including portfolio monitoring, are not designed to determine collateral values ​​and are not subject to the rules.

Comments must be submitted within 60 days of the proposed rule’s publication in the Federal Register.

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