Use Automated Valuation Models? Don’t Forget About This New AVM Interagency Rule That Just Took Effect on October 1, 2025
The effective date for the new interagency Quality Control Standards for Automated Valuation Models final rule is here. The rule was promulgated by the Consumer Financial Protection Bureau (“CFPB”) along with the OCC, FRB, FDIC, NCUA, and FHFA. The rule implements an amendment to FIRREA made by section 1473(q) of the Dodd-Frank Act, which required mortgage originators and secondary market issuers to put in place certain “quality control standards” for the automated valuation models (“AVMs”) they use. The agencies’ rule goes beyond the four statutory quality control standards to include a fifth discretionary standard: compliance with “applicable nondiscrimination laws.” The rule became effective on October 1, 2025. Amid all of the turmoil at the CFPB and these other federal agencies, this rule seems to have flown under the mortgage industry’s radar, quietly becoming effective this week. If you missed this regulatory development, now is the time to bring your operations into compliance.
The rule defines AVMs as “any computerized model used by mortgage originators and secondary market issuers to determine the value of a consumer’s principal dwelling collateralizing a mortgage.” Notably, the rule does not only apply to mortgage originators that use AVMs for their credit decisions, but also to certain “covered securitization determinations” by secondary market issuers. The rule sets forth the quality control policies and procedures for AVMs that these companies must have in place. There is an acknowledgement in the preamble of the final rule that AVMs are typically owned by vendors and not the mortgage originators subject to the rule. In addition, there are also certain exclusions for particular uses of AVMs.
In the preamble, the six agencies cited concerns over the evolution of the underlying technology behind AVMs, as it now allows the processing of significantly larger datasets than in the past. While these advancements may help improve efficiency and reduce costs, the regulators stated concerns that with such large amounts of data involved, these systems could be prone to lapses in quality, such as faulty estimates, manipulated data, conflicts of interest, and the potential for discrimination in violation of fair lending laws.
As of October 1st, mortgage originators using AVMs to assist in credit decisions and secondary market issuers using AVMs in covered securitization determinations must adopt policies and procedures to ensure that the AVMs used in these decisions adhere to the following quality control standards:
Ensure a high level of confidence in the estimates produced;
Protect against the manipulation of data;
Seek to avoid conflicts of interest;
Require random sample testing and reviews; and
Comply with applicable nondiscrimination laws.
Notably, the statutory requirement added by the Dodd-Frank Act does not contain the “nondiscrimination” quality control standard. The agencies added this standard using discretionary authority in the statute that allows them to add “any other such factor that the agencies…determine to be appropriate.” The agencies stated that it added this standard, in part, because of concerns about “the potential for AVMs to produce property estimates that reflect discriminatory bias, such as by replicating systemic inaccuracies and historical patterns of discrimination.” Considering that this current administration has been reining in the past administration’s guidance regarding appraisal bias and discrimination (e.g., a September 2025 Department of Housing and Urban Development internal memorandum rescinding prior agency fair lending guidance stated that “the previous administration’s prioritization of so-called ‘appraisal bias’ and targeting of market-based appraisals was lawless”), it is surprising that this final rule has not been targeted for rescission or amendment by the agencies. It will also be interesting to see if this aspect of the rule ends up being challenged in court, in light of the current administration’s reversal on appraisal bias.
Please email me at rich@garrishorn.com if you would like to discuss any of the issues in this post or would like assistance with implementation. We regularly assist mortgage companies with implementing and staying ahead of regulatory developments.
