CFPB’s New Standards for Property Valuation in Mortgage Markets

The recent adoption of a rule by multiple federal regulators, including the Consumer Financial Protection Bureau (CFPB) and others, regarding automated valuation models (AVMs) marks a significant regulatory development in mortgage origination and secondary market transactions. 

According to an article by Alston & Bird, the rule, mandated by Section 1473 of the Dodd-Frank Act, aims to establish quality control standards for AVMs used in valuing residential properties and securing mortgage loans. Effective from July 1, 2025, or the first day of a calendar quarter thereafter, the rule imposes obligations on mortgage originators and secondary market issuers to ensure AVMs meet specified standards.

AVMs, computerized models used to assess property values, must adhere to rigorous quality control measures under the rule. These measures include safeguarding against data manipulation, preventing conflicts of interest, conducting random sample testing, and complying with nondiscrimination laws. 

The rule governs AVMs used for credit decisions or securitization eligibility on mortgages secured by a consumer’s dwelling, regardless of its primary use. Exclusions apply to AVMs used solely for post-issuance monitoring or appraisal reviews. The article highlights that institutions must establish robust compliance policies and systems, with flexibility based on size and transaction complexity. 

Another aspect of the rule is that it applies broadly to mortgage originators, brokers, and servicers, stressing compliance in mortgage-backed securities. Certified appraisers using AVMs for appraisal development are exempt, requiring institutions to align policies with regulatory guidelines and manage vendor relationships effectively.

Overall, the rule underscores the regulators’ commitment to enhancing transparency, reliability, and fairness in property valuation in mortgage markets, reinforcing the overarching goal of consumer protection and market stability. The authors suggest that the institutions affected must now focus on aligning their practices with these new standards ahead of the implementation date to mitigate compliance risks effectively.