Letter to the Agencies on Automated Valuation Models

To whom it may concern:

The American Bankers Association  appreciates the opportunity to comment on the notice of proposed rulemaking  for automated valuation models (AVMs) under section 3354 of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).  The Dodd-Frank Act added a new section 3354 to FIRREA relating to the use of AVMs in valuing real estate collateral securing mortgage loans for credit and securitization determinations. Section 3354 requires the agencies to issue rules for AVM quality control (QC) standards designed to (1) ensure a high level of confidence in the estimates produced by AVMs; (2) protect against the manipulation of data; (3) seek to avoid conflicts of interest; (4) require random sample testing and reviews; and (5) account for any other such factor that the agencies determine to be appropriate.

The proposal "would require mortgage originators and secondary market issuers to adopt policies, practices, procedures and control systems to ensure that AVMs used in certain credit decisions or covered securitization determinations adhere to quality control standards designed to meet specific quality control factors." The proposed factors include the four factors listed in section 3354 and a fifth addressing fair lending compliance. 

I. Summary of the Comment

ABA's paramount concern is that the proposal likely will over-burden – and therefore discourage – AVM use in mortgage origination. AVMs can provide an estimated property value in minutes and at a fraction of the cost of an appraisal, benefiting both mortgage originators and consumers. While we appreciate that the proposal extends flexibility to mortgage originators to decide how to incorporate the QC factors into AVM use, the rule will impose additional layers of compliance burden. This added burden is unnecessary and inappropriate for banks in that they have long been subject to prudential regulators’ model risk guidance and are regularly examined for compliance. 

ABA has additional concerns with other aspects of the proposal, most notably with the proposed fifth QC factor for fair lending. Banks support fair lending laws and are regularly examined for compliance with them. We understand the agencies’ concern that AVMs could "produce property estimates that reflect discriminatory bias, such as by replicating systemic inaccuracies and historical patterns of discrimination."  However, the addition of the fifth factor is unnecessary here – as the agencies acknowledge, long-standing fair lending laws have and will continue to apply to mortgage transactions. Moreover, it is impractical for most banks to test AVMs for fair lending concerns for reasons discussed below.

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