OCC Bulletin 2024-17 | July 17, 2024

Quality Control Standards for Automated Valuation Models: Final Rule

To

Chief Executive Officers of All National Banks, Federal Savings Associations, and Federal Branches and Agencies; Department and Division Heads; All Examining Personnel; and Other Interested Parties

Summary

The Office of the Comptroller of the Currency (OCC), along with the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Consumer Financial Protection Bureau, and the Federal Housing Finance Agency (collectively, the agencies) have adopted a final rule designed to implement quality control standards for automated valuation models (AVM) used by mortgage originators and secondary market issuers in valuing residential real estate.

The final rule will become effective on the first day of the calendar quarter following 12 months after publication in the Federal Register.

Note for Community Bank

The final rule applies to all national banks and all federal savings associations, including community banks.

Highlights

Under the final rule, the OCC will require banks that use AVMs in certain credit decisions or securitization determinations to adopt policies, practices, procedures, and control systems to ensure that AVMs adhere to quality control standards designed to

ensure a high level of confidence in the estimates produced by AVMs,
protect against the manipulation of data,
seek to avoid conflicts of interest,
require random sample testing and reviews, and
promote compliance with applicable nondiscrimination laws.

The final rule does not set specific requirements for how banks should structure these policies, practices, procedures, and control systems. This approach will give banks the flexibility to set quality controls for AVMs as appropriate based on the size of the bank and the risk and complexity of transactions in which AVMs are used. As modeling technology continues to evolve, this flexible approach will allow banks to refine their policies, practices, procedures, and control systems as appropriate.

Background

Section 1473(q) of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 amended title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 to require quality control standards for AVMs used in valuing real estate collateral that secures mortgage loans. The final rule implements the minimum AVM quality control standards in the statute. The final rule also implements a quality control standard designed to promote compliance with applicable nondiscrimination laws.

The final rule reflects the increasing use of AVMs in the real estate valuation process, driven in part by advances in database and modeling technology and the availability of larger property datasets. 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 banks using AVMs continue to ensure the credibility and integrity of their valuations.

Further Information

Please contact Mitchell Plave, Special Counsel, or Joanne Phillips, Counsel, Chief Counsel’s Office, at (202) 649-5490.

Theodore J. Dowd
Acting Senior Deputy Comptroller and Chief Counsel