National Fair Housing Alliance, National Consumer Law Center Issue Public Comment on Behalf of Its Low-Income Clients to 6 Agencies
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The comment was sent to the
Here are excerpts:
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1 Notice of Proposed Rulemaking regarding Quality Control Standards for Automated Valuation Models, 88 Fed. Reg. 40638 (
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Founded in 1988, NFHA is the country's only national civil rights organization dedicated solely to eliminating all forms of housing and lending discrimination and ensuring equal opportunities for all people. As the trade association for over 170 fair housing and justice-centered organizations and individuals throughout
NCLC is recognized nationally as an expert in consumer credit issues. For over 53 years, NCLC has drawn on this expertise to provide information, legal research, policy analyses, and market insights to federal and state legislatures, administrative agencies, and the courts. NCLC also publishes a twenty-one volume Consumer Credit and Sales Legal Practice Series, including Credit Discrimination (8th Ed. 2022), which examines and applies the Equal Credit Opportunity Act ("ECOA"), the Fair Housing Act ("FHA"), and other civil rights statutes.
As discussed in the
Also as discussed in the
2 Letter from the
3 See
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...adequately examined and tested: there is no question that discriminatory mis-valuations are a historical and present phenomenon,/4 and AVMs--like any technology--can perpetuate or amplify that bias, or introduce new potentially disproportionate impacts or outcomes./5 The Agencies should use this opportunity to make abundantly clear that FIRREA prohibits the use of discriminatory AVMs, and to require that AVMs must be reviewed for both disparate treatment and disparate impact (including an analysis of less discriminatory alternatives) in order to meet the requirements of FIRREA.
Comments on the Proposal
A. The Rule Should Use a Principles-Based Approach:
We commend the Agencies for adopting a principles-based approach to the rule. The rule should be crafted in such a way that changes in AVM technology, or in quality control, testing, or risk mitigation methods, do not escape or become inconsistent with the requirements of FIRREA. As model development techniques, model deployment processes, data types, and data sources change, AVMs will evolve, and risk mitigation, testing, and quality control will have to adapt. In order to effectively implement the requirements of FIRREA, the Agencies should adopt a rule that includes high-level requirements regarding quality control based on core principles of antidiscrimination law, including reviewing the outcomes of AVMs for potential disparate impact. The Agencies should use guidance as the appropriate venue to address the more nuanced issues of compliance, such as how to conduct particular types of testing, including outcomes-based testing for disparate impact, and how to evaluate potential less discriminatory alternatives to an AVM that has disparate outcomes.
Such a principles-based approach contrasts with a specific and detailed rules-based approach, which would enumerate specific policies, procedures, control systems, or methodologies that all institutions must implement to comply with the rule. A principles-based approach should include sufficient detail about what must be covered by QC--for example, QC...
4 See generally
5 See generally
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...should involve reviewing AVMs to ensure there is no discriminatory disparate treatment, testing AVMs for disparate impact, and analyzing potential less discriminatory alternatives, and the Agencies should explicitly state in the rule their expectations that these kinds of testing be performed--but the rule should not be prescriptive about how those reviews and tests are conducted.
B. Consistent with the Statute, the Rule Should be Broadly Applicable:
FIRREA requires the Agencies, in consultation with the Appraisal Subcommittee and the Appraisal Standards Board of
FIRREA was correct not to limit its coverage to AVMs used only in particular contexts like underwriting, and the Agencies should not introduce such a limitation now. The Agencies' proposed rule incorrectly and inappropriately limits the breadth of the rule's applicability in three ways. First, the proposed rule inappropriately excludes the following from coverage:
(i) Monitoring of the quality or performance of mortgages or mortgage-backed securities;
(ii) Reviews of the quality of already completed determinations of the value of collateral; or
(iii) The development of an appraisal by a certified or licensed appraiser./7
Second, the proposed rule also fails to specifically cover essential aspects of a credit transaction. For example, the proposed rule fails to mention the use of AVMs in connection with determining collateral worth for the purposes of private mortgage insurance (PMI) or homeowners' insurance. In addition, the proposed rule omits reference to use of AVMs in connection with options or shared equity contracts, which are heavily dependent on AVMs. Determination of the collateral worth of a consumer's principal dwelling at any point in the lifecycle of a loan should be covered, because all such determinations can be as impactful as direct use during underwriting. Use of AVMs to review appraisals can alter the terms and conditions of a loan. AVMs used during loss mitigation can decide whether a borrower remains in their home. The Agencies should rescind the above-named exclusions and explicitly cover AVMs used to determine collateral worth in connection with any aspect of a mortgage transaction.
Third, the proposed rule incorrectly limits accountability to "mortgage originators" and "secondary market issuers"/8 rather than focusing on the statutorily required act. FIRREA states...
6 12 U.S.C. Sec. 3354(d).
7 See 88 Fed. Reg. at 40673 (Proposed 12 C.F.R. 1026.42(a)(i)(1)).
8 See 88 Fed. Reg. at 40673 (Proposed 12 C.F.R. 1026.42(a)(3)).
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...that "[a]utomated valuation models shall adhere to quality control standards designed to . . . ."/9 The proposed rule's unnecessarily limited interpretation is unwarranted and will inevitably clash with changes in technology and business models as to how the AVMs are developed and delivered. The statute does not require any particular entity to undertake that QC nor does the statute exempt any entity from undertaking such QC. Moreover, the statute clearly allows for enforcement by the
In practice, broad applicability is especially important because AVMs "used" by mortgage originators and SMIs are not necessarily developed by the mortgage originators or SMIs. In other words, the entity who builds, programs, and presumably engages in testing of the AVM during development--the "AVM Developer"--is not always the mortgage originator, SMI, or other individual or entity who employs the AVM in its course of business--the "AVM User." The fact that a mortgage originator may be an AVM User but not an AVM Developer should not exempt it from taking the steps necessary to assure itself that the AVM in question is not discriminatory. But it does support an approach to this rulemaking that allows for robust QC to occur at an appropriate place, and with an appropriate party, during AVM development, with and by the entity who has the tools and data necessary to conduct that QC. Because it might not always be possible or advantageous for a mortgage originator to directly engage in QC, the rule should focus not on which actor must conduct QC, but rather the standards and principles that AVMs must meet, including antidiscrimination standards. All actors, then, should be responsible for ensuring that the QC occurred and was appropriate, by either conducting that QC directly or by engaging in appropriate due diligence. This QC should occur not only prior to an AVM's adoption or use, but also on an ongoing basis. In guidance, the Agencies should provide additional information about how QC can and should be carried out in the broader marketplace, and how mortgage originators, SMIs, and others can reasonably ensure the AVMs that they use comply with QC requirements. This guidance should discuss the appropriate role of AVM Developers and AVM Users in ensuring robust and adequate QC of AVMs, and could include due diligence or other steps appropriate for originators or SMIs to take given the relationships between participants in the market, differing technological capability between and among AVM Developers and various AVM Users, and the availability of the data necessary to conduct robust QC.
In addition, the rule should explicitly cover servicers as well as
9 12 U.S.C. Sec. 3354(a).
10 Id. Sec. 3354(c)(2).
11 See 88 Fed. Reg. at 40642.
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..."servicers."/12 The final Rule should provide for broad coverage, including servicers, whenever an AVM is used to determine the collateral worth of a mortgage in connection with a credit decision--including decisions made during servicing. In addition, the definition of "secondary market issuer" should explicitly mention
C. The Agencies Should Release Loan-Level Appraisal Data:
For robust QC to be possible, the Agencies must make available to the public loan-level, quality, representative, and comprehensive appraisal data. The release of additional information from the Uniform Appraisal Dataset would enhance all entities' ability to ensure that AVMs meet quality control standards--including through the performance of quantitative testing for nondiscrimination.
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Sincerely,
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Original text here: https://downloads.regulations.gov/OCC-2023-0002-0015/attachment_1.pdf
TARGETED NEWS SERVICE (founded 2004) features non-partisan 'edited journalism' news briefs and information for news organizations, public policy groups and individuals; as well as 'gathered' public policy information, including news releases, reports, speeches. For more information contact
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