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Mortgage lenders who use automated valuation models (AVMs) to speed loan processing and cut costs could soon be required to implement quality control standards that might include proving that their use of AVMs doesn’t violate fair lending laws.
Acting at the direction of lawmakers, six federal agencies published a proposed rule Thursday aimed at safeguarding the “credibility and integrity” of valuation models used in real estate.
The proposed standards, including random sample testing and reviews, “are designed to ensure a high level of confidence in the estimates produced by AVMs” and protect against data manipulation, conflicts of interest and violations of fair lending laws, regulators said in their request for comment.
“AVMs are used as part of the real estate valuation process, driven in part by advances in database and modeling technology and the availability of larger property datasets,” the agencies said in a joint press release. “While advances in AVM technology and data availability have the potential to contribute to lower costs and reduce loan cycle times, it is important that institutions using AVMs take appropriate steps to ensure the credibility and integrity of their valuations.”
The proposed quality control standards for AVMs would also apply to Fannie Mae and Freddie Mac, which have fully embraced the use of AVMs to approve some homebuyers for loans without an appraisal. Lenders who rely on Fannie and Freddie’s automated evaluations wouldn’t be subject to the new standards.
The rule would only apply to mortgage originators making credit decisions, servicers making loan modification decisions and secondary market issuers like Fannie Mae and Freddie Mac who use AVMs to value homes that serve as collateral.
Other uses…