If you've gone through any of the current AVM regulations and requirements for validation in the revised interagency appraisal and valuation guidelines, and you are still at a loss as to what's really going on with it, your head might start spinning even faster when you find out that there are even more of these regulations related to AVM forthcoming. Yep it's true, and these are going to be more broadly targeted towards residential mortgage loans that slipped through the cracks on the other interagency guidelines.
So what are these regulations?
FIRREA Title XI was amended by Section 1473(q) of Dodd-Frank adding a new section 1125. 1125 of the FIRREA makes the requirement for the FHFA, the OCC, the CFPB, and the NCUA, while in consultation with the ASC (Federal Appraisal Subcommittee); an FFIEC subcommittee, and the ASB (appraisal standards board), who gained notoriety for their part in USPAP, to draft and implement new AVM quality control standards.
What are the regulations going to say?
Dodd-Frank hasn't came out and told us exactly what these regulations are going to state, and there is truly no way to know until they are actually published, but they have provided the above-mentioned agencies with some guidelines for the rules that they feel need to be addressed. Some of these guidelines include a requirement for reviews and random sampling, protection against manipulation of data, avoiding situations where there would be a conflict of interest, and other issues that the agencies may see fit to address. It's our expectation that you'll also see the inclusion of validation requirements along with many concepts that have been borrowed from existing guidelines.
When are the regulations supposed to go into effect?
The date given by Dodd-Frank for the publication of these regs is 1/2013, and since they have to be implemented within a year after publishing, it's our expectation that all of them will be in place before the end of the year 2013.
Who and what transactions are going to be effected by these new AVM regulations?
When it comes to the new section 1125 of FIRREA and its purposes, Dodd-Frank provides the definition of an AVM as being "[A]ny computerized model used by mortgage originators and secondary market issuers to determine the collateral worth of a mortgage secured by a consumer's principal dwelling."
We really don't have any idea yet which of the AVM transactions are going to be directly affected by these new regulations yet, as all of that is going to be detailed in the actual regs when they are published, but we know the main point of them is going to focus on AVMs which are used by loan originators, and issuers of secondary mortgages when they are secured by the individuals primary residence.
Who's going to be responsible for enforcing these AVM regulations?
For any entity that is a regulated financial institution, such as a bank, all of these AVM regs are going to be enforced by their current federal regulator. When it comes to other entities that aren't regulated by the federal government, and who participate within the market, the burden of the enforcement will be placed upon the Atty. Gen. of the state, the FTC, and the CFPB.
If you have any other questions, feel free to call our toll-free number at 1-970-214-7401.