ICBA called on federal regulators to avoid disincentivizing the use of automated valuation models, or AVMs, which mortgage lenders use to value real estate collateral.

Background: An interagency proposed rule would require institutions that engage in covered transactions to adopt systems to ensure AVMs adhere to quality control standards designed to ensure the credibility and integrity of valuations. The proposal also says the agencies want to allow the industry to design and implement systems to determine if an AVM meets these standards.

Responsibility Shift: In a comment letter, ICBA said that while regulators are right to help ensure AVMs become more widely adopted, are accurate, and do not violate fair lending laws, it is concerned the agencies are seeking to shift responsibility to originators to assess AVMs. ICBA said this would force lenders—particularly smaller community banks with limited resources and limited access to AVM data algorithms—to cease using this technology due to compliance challenges, costs, and uncertainty.

Lending Impact: ICBA said that decreasing the use of AVMs would disincentivize mortgage lending in rural areas, where AVMs can be utilized as more cost-effective, efficient, and accurate options to help value collateral and manage risk. Validating an AVM's fair lending practices would be particularly difficult, costly, and redundant given that community banks already comply with existing fair lending laws, ICBA said.

ICBA Recommendations: To avoid a negative impact on AVMs and mortgage lending in local communities, ICBA called on regulators to:

  • Apply a $400,000 threshold for AVM usage on portfolio loans, which would mirror the existing threshold for traditional appraisal requirements.

  • Explore using both a standards-setting organization that will provide specific, clear, and consistent industry standards and a third-party testing organization capable of validating AVM providers without a conflict of interest.

Previous Comments: In a comment letter to the CFPB last year, ICBA said regulators should avoid burdensome rules on AVMs, particularly for the community banks using these models to make underwriting decisions and find comparable values in rural areas.