Our readers may recall prior articles included in our newsletter on the topic of appraisals. Most recently, our February 2023 article, “Combatting Bias in Appraisals,” highlighted a variety of actions and issuances related to the topic. As noted therein, we encourage our clients to remain cognizant of ongoing developments in this area.
What's currently happening?
In keeping up with this topic, institutions should be aware of two issuances that came out earlier this month:
- Interagency Guidance on Reconsiderations of Value of Residential Real Estate Valuations Proposed
- Quality Control Standards for Automated Valuation Models (AVMs) Proposed
What does the Proposed Interagency Guidance on Reconsiderations Say?
This interagency guidance was issued by the CFPB, FRB, FDIC, NCUA, and OCC. It is currently proposed and includes a request for comment, which will remain open for 60 days after publication in the Federal Register.
As the name of the guidance implies, the focus of the proposal is on reconsiderations of value (ROV) for real estate transactions. ROV refers to a request from an institution to an appraiser to reassess the value of residential real estate. It is aimed at highlighting risks tied to deficient residential real estate valuations and clarifies how an institution can establish ROV processes into their risk management practice.
While some of the agencies have previously issued guidance related to steps an institution may take to correct deficiencies in valuations, they collectively did not have existing guidance specific to ROVs. Besides providing some background and information on applicable statutes, regulations, and guidance, an important component of the new issuance is focused on providing examples of policies, procedures, and control systems that will identify and mitigate risk of deficient valuations.
Institutions are encouraged to review the proposal and consider providing comment.
What do the Proposed Quality Control Standards for AVMs Say?
This proposed rulemaking was issued by the CFPB, FRB, FDIC, FHFA, NCUA, and OCC. It includes a request for comment, which will remain open through August 21, 2023.
The rulemaking is tied to the Dodd-Frank Act and a mandate to implement quality control standards for the use of AVMs by mortgage originators when determining the value of collateral. An AVM refers to any computerized model used by mortgage originators and secondary market issuers to determine the value of a consumer’s principal dwelling collateralizing a mortgage. Quality Control Standards refers to the adoption of policies, practices, procedures, and control standards to ensure the AVM used is designed to ensure confidence in results, protect against data manipulation, avoid conflicts of interest, require random sampling, and comply with nondiscrimination laws.
While the FRB, FDIC, NCUA, and OCC have already provided some guidance on the use of AVMs in Appendix B to the Interagency Appraisal and Evaluation Guidelines, and in other resources, the new rulemaking is designed to be reflected within an agency’s existing regulation. For example, the FDIC’s Appraisal regulation 12 CFR 323 is proposed to be amended with 323.15, 323.16, and 323.17, which addresses scope, definitions, and quality control standards.
Institutions are encouraged to review the proposed rulemaking and consider providing comment.