Trade groups call for consistency, flexibility regarding AVM regulations

Too much oversight could stifle potential of automated valuation models, MBA and CBA say

Responding to a government request for input into proposed standards for automated valuation models (AVMs), two key industry groups have jointly signed a letter expressing optimism for the potential of AVMs while expressing concern that regulation must keep the playing field level and not stifle innovation.

In their letter, the Mortgage Bankers Association (MBA) and Consumer Bankers Association (CBA) lauded the potential of AVMs to address key inefficiencies within the home appraisal and valuation process. Recently, a pair of pain points have arisen regarding home valuations: a shortage of appraisers that contributes to higher valuation costs, and increased concerns regarding potential appraisal bias.

The latter issue has shined a spotlight on the possibility that AVMs could cut down on such biases, with their underlying data sets acting as a backstop that could recognize “one-off” undervaluations. But federal policymakers have also raised concerns that the algorithms used by AVMs could be prone to replicating previous discrimination patterns embedded in the historical datasets.

The trade groups acknowledged that lenders have a need for clearly defined guidelines regarding the use of AVMs. They suggested that the Consumer Financial Protection Bureau expand upon previously issued compliance bulletins regarding third-party vendors that provide AVMs. But while oversight is a clear need, the MBA and CBA proffered a “strong suggestion” that regulatory requirements are balanced against the potential for technological advancements. The possibility for AVMs and other valuation technologies to ease appraiser shortages, cut down on bias and reduce costs “should remain top of mind during the rulemaking process,” the groups stated.

Emphasis within the joint letter appeared to be placed on the need to strike a balance between uniformity and flexibility. The organizations stressed that any regulatory framework should apply consistently to different lending institutions, establishing the same rules for independent mortgage bankers and depository lenders. Federal regulators, they said, should recognize the constraints faced by smaller lenders and avoid requirements that would discourage them from using AVMs altogether.

At the same time, to allow for the differing practices regarding industrywide AVM usage, the MBA and CBA advocated for a “principles-based approach” which keeps lenders that use AVMs on equal footing while allowing them to adopt and maintain their own policies and control systems. Institutions covered by any potential regulations should have the flexibility to establish AVM-related processes that reflect their own business models, the MBA and CBA asserted.

The groups also reasserted a key argument that lenders shouldn’t be liable for violating anti-discrimination laws when they rely on third-party AVMs.

“MBA and CBA disagree with [government agencies’] interpretation of the Fair Housing Act … that the statute establishes liability for lenders when an AVM provider violates nondiscrimination law,” the letter stated. “In general, the [Fair Housing Act] imposes liability for the discriminatory acts of a third party by applying traditional principles of vicarious liability.

“Whether a creditor has a duty to ensure third-party compliance depends on the extent of the creditor’s control over that third party. Creditors do not exercise control over independent third-party AVM providers, and those AVM providers are not agents or employees of the creditor.”


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