Six federal agencies have requested comments from the public on a new proposed rule designed to “ensure the reliability and integrity of models used in real estate valuations.”
Thank you for reading this post, don't forget to subscribe!The proposed rule would also enforce quality control standards that govern the use of automated valuation models (AVMs) used by mortgage originators and secondary market issuers in evaluating real estate collateral secured mortgage loans.
Involved agencies include federal housing finance agency, consumer financial protection bureau, National Credit Union Administration, Federal Deposit Insurance Corporation, U.S. Department of the Treasury, And this federal Reserve System,
“Under the proposal, the agencies would require institutions engaging in covered transactions to adopt policies, practices, procedures and control systems to ensure that AVMs adhere to quality control standards that assess the reliability and integrity of are designed to ensure,” the announcement said.
The announcement aims to create a set of standards that enhance confidence in the use of AVMs.
“The proposed standards are designed to ensure a high degree of confidence in the estimates produced by AVMs; help protect against manipulation of data; try to avoid conflicts of interest; require random sample testing and review; and promote compliance with applicable nondiscrimination laws,” the agencies said.
In a blog post released with the joint announcement, CFPB director Rohit Chopra said AVMs have the potential to cause serious harm if the algorithms are inaccurate or biased.
“Machines crunching numbers may seem capable of taking human bias out of the equation, but they can’t,” Chopra said. “Depending on the data they’re fed and the algorithms they use, automated models can embed the very human biases they’re meant to correct. And the design and development of models and algorithms is built around developers’ biases and blinders.” Can reflect spots.
This can make bias more difficult to filter out, as algorithms can “hide biased input and design under a false cover of objectivity,” he said.
According to the announcement, ensuring that standards are in place allows these instruments to be used with greater confidence, and ultimately reduces the costs associated with assessment.
The agencies said, “While advances in AVM technology and data availability have the potential to reduce costs and reduce loan cycle times, it is important that institutions using AVMs take appropriate steps to ensure the reliability and integrity of their assessments.” Take steps.” “It is also important that AVM institutions adhere to quality control standards that are designed to comply with applicable nondiscrimination laws.”
As per the proposed rule, these quality control standards would apply only to the use of AVMs in determining the value of collateral.
“The proposed rule would enforce the law by imposing quality control standards when AVMs are being used to determine collateral value, as opposed to other uses such as monitoring value over time or validating an already completed valuation.” is,” the proposed rule states.
Other AVM uses, including portfolio monitoring, are not designed to determine collateral value and will not be subject to the regulations.
Comments must be submitted within 60 days of publication of the proposed rule in the Federal Register.
