Six federal agencies today issued a final rule to regulate the credibility of algorithmic models used in real estate valuations. The rule is part of a larger effort by the Biden administration to address alleged bias in the appraisal process.
The Office of the Comptroller of the Currency, Consumer Financial Protection Bureau and FDIC previously finalized the rule, and they were joined today by the Federal Reserve, Federal Housing Finance Agency and National Credit Union Administration. The rule requires institutions that engage in covered transactions to adopt policies, practices, procedures and control systems to ensure that automated valuation models, or AVMs, adhere to quality control standards designed “to ensure a high level of confidence in the estimates produced” by the models. Those policies and procedures must also protect against manipulation of data, seek to avoid conflicts of interest, require random sample testing and review, and comply with all applicable nondiscrimination laws.
The final rule does not set specific requirements for how banks should structure such policies, practices, procedures and control systems, according to an OCC bulletin. “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,” the agency said.
