Two major industry bodies, the Mortgage Bankers Association (MBA) and the Consumer Bankers Association (CBA), have expressed concern with the proposed federal regulations concerning automated valuation models (AVMs). AVMs are a tool used by mortgage lenders to assess property value and determine loan eligibility based on credit and collateral risk.
In recent years, two significant issues have arisen within the real estate industry concerning home valuations: the rising costs due to a shortage of appraisers and concerns about bias. The latter has put AVMs under the spotlight. The MBA and CBA recognize the importance of monitoring AVMs for fairness but emphasize that regulatory requirements should not stifle technological advancements, which could alleviate appraiser shortages and reduce costs.
While the industry associations support a principles-based approach to regulation, which allows for flexibility in AVM usage depending on business models, they also acknowledge lenders' need for clearer guidelines. They suggest the Consumer Financial Protection Bureau (CFPB) expand on its earlier bulletins to offer more concrete recommendations regarding third-party service providers.
Also, the MBA and CBA believe any regulatory framework should be applied consistently without differentiating between various entities that utilize AVMs. This is to ensure that no particular business model gets a competitive disadvantage.
An important recommendation was about providing access to the government-sponsored enterprises (GSEs) appraisal dataset. This access would allow AVM providers and lenders to improve the accuracy and consistency of their models.
Regarding concerns about potential discrimination embedded within AVMs, the MBA and CBA argue that lenders should not be held liable for third-party AVM providers' potential violations of nondiscrimination law. They emphasize that lenders don't control these independent AVM providers and thus can't be held responsible for their outputs.
The associations also note that lenders cannot effectively pinpoint and isolate the effects of systemic bias from the results they get from an AVM. They emphasize the need for broader efforts to address systemic biases rather than imposing unrealistic expectations on lenders.
The letter reflects the industry's balancing act between ensuring fair and equitable practices, addressing concerns about bias and discrimination, and leveraging technological advancements for efficiency. The discussions on the proposed rule on AVMs are expected to have far-reaching implications for lenders, homebuyers, and the overall real estate industry.
