5 Guiding Quality Control Standards
DOEREN MAYHEW Continued from page 3
Implications of the Broad , Flexible Quality Control Standards
Notably , Section 1125 does not seek to foster uniformity in the AVM market , but rather provide institutions with the flexibility to establish quality controls , as appropriately , based on the size , complexity and risk profile of the institution , as well as the
5 Guiding Quality Control Standards
Referencing the established AVM definition , Section 1125 mandates financial institutions utilizing AVMs in credit decisions or securitization determinations must “ adopt and maintain policies , practices , procedures , and control systems ” to ensure the AVMs adhere to these five quality control standards : transactions for which they would use AVMs .
Therefore , the final rule does not set specific requirements for how institutions should structure their policies , practices , procedures and control systems . To this end , Section 1125 is designed to implement broad malleable standards that will evolve along with AVM / modeling technology , thereby ensuring agencies ’ existing guidance related to AVMs remains applicable .
Nondiscrimination Quality Control Standard
Institutions have expressed concerns regarding how to implement the nondiscrimination quality control standard
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Existence of a high level of confidence in the estimates produced .
Protection against the manipulation of data .
Avoidance of conflicts of interest .
Required random sample testing and reviews .
Compliance with applicable nondiscrimination laws . and suggested regulatory agencies should provide additional guidance . Specifically , smaller entities referenced how the lack of access to AVM reference data would complicate compliance . Ultimately , the CFPB noted existing nondiscrimination laws apply to appraisals / AVMs and institutions have a preexisting obligation to comply with all federal laws . Given the existing guidance on fair lending considerations to inform compliance with the nondiscrimination factor and flexible nature of rule itself , the CFPB did not feel it was necessary to provide further guidance .
Scope of the Final Rule
Delving deeper into the scope of the forthcoming rule , it is imperative to point out the CFPB intends this rule to encompass mortgage originators utilizing AVMs for credit decisions , as well as secondary market issuers utilizing them to make certain determinations regarding securitizations .
Credit Decisions
With respect to mortgage originators , the CFPB defined “ credit decision ” to include whether , and under what terms , to originate , modify , terminate or make other changes to a mortgage . This includes , for example , “ decisions regarding originating a mortgage ; modifying the terms of an existing loan ;
04 | VIEWPOINTS : REGULATORY COMPLIANCE EDITION