Mortgage originators and secondary market issuers have long relied on automated valuation models (AVMs) for calculating the value of collateral securing mortgages on consumers’ principal dwellings. With the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) reconfiguring the financial landscape, these processes have come under increased scrutiny.
As a result of the Dodd-Frank Act, section 1125 was added to the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA). This newly added section raises points for mortgage industry entities to consider regarding the assessments and checks in place around AVMs. As the Act and the newly included section seek to ensure the stability of financial institutions, the spotlight on AVMs and their quality control has never shone brighter.
With the new shift in focus, agencies have now proposed quality control standards for AVMs. These suggested standards aim to secure the integrity of financial establishments, prevent avoidable losses, and maintain the actuaries’ reliable value calculation of mortgages’ collateral.
Furthermore, the proposals also strive to establish clear expectations for how financial institutions should engage with AVMs. From defining what constitutes reasonable steps in testing AVMs for compliance, to establishing acceptable practices for developing AVM inputs and outputs, these proposals bring a much-needed clarity to the use and application of AVMs.
The standards are initially published in American Bar Association’s Business Law Today and are open for public comment. The mortgage originators, secondary market issuers and other stakeholders are invited to review the proposals and contribute their feedback.
For more detailed analysis and information on the proposed quality control standards for AVMs, you can access the originally published article by McGlinchey Stafford on JD Supra.