A final rule designed to ensure credibility and integrity of automated valuation models (AVMs) in mortgages secured by a consumer’s principal dwelling through quality control standards was issued Wednesday by the federal financial regulators and the federal housing finance overseer.
According to the financial institution regulators, and the Federal Housing Finance Agency (FHFA), the final rule is substantially similar to the proposal issued just more than a year ago.
The final rule becomes effective Oct. 1, 2025, according to the notice of final rule in the Federal Register.
The six agencies noted that the final rule will require banks, credit unions, and other lenders to adopt policies, practices, procedures, and control systems that:
- ensure a high level of confidence in estimates;
- protect against data manipulation;
- seek to avoid conflicts of interest;
- require random sample testing and reviews; and
- comply with nondiscrimination laws.
According to the agencies’ release, advances in AVM technology and data availability have the potential to reduce costs and turnaround times of the property valuation process. However, they stated, “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 final rule was adopted last month by both the Federal Deposit Insurance Corp. (FDIC) and the Office of the Comptroller of the Currency (OCC). The Consumer Financial Protection Bureau (CFPB), Federal Reserve, and the National Credit Union Administration (NCUA) had not then approved the final rule.
The standards were mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), passed in the wake of the 2008 financial crisis.
The standards are only applicable to AVMs used in connection with making credit decisions or covered securitization determinations regarding a mortgage (covered AVMs), as defined in the final rule. It would cover neither the use of AVMs in the development of an appraisal by a certified or licensed appraiser, nor the review of the quality of already completed determinations of collateral value (completed determinations).
However, the standards would cover the use of AVMs in preparing evaluations required for certain real estate transactions that are exempt from the appraisal requirements under the appraisal regulations issued by the regulators, such as transactions that have a value below the exemption thresholds in the appraisal regulations.
(The proposal specifically noted that it did not cover credit union subsidiaries, known as credit union service organizations [CUSOs] that engage in mortgage lending. The proposal indicated that the credit union regulator’s regulations already indirectly affected CUSOs [in that federally insured credit unions may invest only in CUSOs that conform to certain specified requirements]).
Agencies Issue Final Rule To Help Ensure Credibility And Integrity Of Automated Valuation Models