What the federal AVM rule asks of lenders
Six agencies spent years on a rule that fits on a page. It is worth reading slowly, because what it excludes says as much as what it requires.
What is the AVM quality control rule?
It is a final rule from six federal agencies that sets quality control standards for automated valuation models used in mortgage decisions on a consumer's principal dwelling.
The agencies are the OCC, the Federal Reserve Board, the FDIC, the NCUA, the CFPB and FHFA. They announced the rule on July 17, 2024. It was published in the Federal Register on August 7, 2024, and it took effect on October 1, 2025.
The rule defines an automated valuation model in broad terms: any computerized model that mortgage originators and secondary market issuers use to determine the value of a principal dwelling that secures a mortgage. The definition says nothing about the technique inside. A regression, a gradient boosted ensemble and a neural network all fit, as long as the output is a value used in a covered decision.
What do the five quality control factors require?
Covered institutions must keep policies, practices, procedures and control systems so that the models they rely on meet five standards.
- Ensure a high level of confidence in the estimates produced.
- Protect against the manipulation of data.
- Seek to avoid conflicts of interest.
- Require random sample testing and reviews.
- Comply with applicable nondiscrimination laws.
The rule does not name a method, a vendor or an accuracy threshold. The agencies describe a flexible approach, where each institution sets controls that suit its size, complexity and risk profile, and refines them as modeling technology changes. That is interesting for anyone building models: the burden is on showing control, not on hitting a published number.
The fifth factor has a clear lineage. The federal PAVE task force, in its March 2022 action plan, committed the agencies writing this rule to include a nondiscrimination quality control standard.
Which decisions does the rule cover?
It covers models used in credit decisions and in covered securitization determinations by mortgage originators and secondary market issuers.
A credit decision is a decision about whether and on what terms to originate, modify or terminate a mortgage, including changes to a credit line. A covered securitization determination includes deciding whether to waive an appraisal requirement for a loan headed to the secondary market.
That second piece is the one to notice. When a model's number is the reason no appraiser is sent, the model sits inside the rule.
What does the rule leave out?
Three uses fall outside it: monitoring loans or securities already on the books, reviewing valuations that are already complete, and an appraiser's use of a model while developing an appraisal.
The agencies explained the appraiser exclusion carefully. An appraiser may use a model while preparing an appraisal, but must still reach credible results under USPAP. The value conclusion therefore has to be supportable on its own and cannot rest on the model. The agencies also noted it would be impractical for lenders to police the tools used by many independent appraisers.
Read that way, the rule quietly restates the difference between a model and an appraisal. One is an estimate an institution must govern. The other is a conclusion a person must support.
Common questions
Does the rule ban any particular AVM?
Does an appraiser who uses an AVM have to follow the rule?
When did the rule take effect?
- Where AI fits in property valuationThe homepage overview of what models do well and where they stop.
- Can AI sign an appraisal?Why the signature still belongs to a credentialed person.
- Where AI helps an appraiser todayPhoto review, data checks and comparable search, with the appraiser deciding.
- Bias and fairness in automated valuationWhat federal agencies have said about models and fair housing.
Sources
- Quality Control Standards for Automated Valuation Models, final rule, Federal Register Vol. 89, No. 152 (August 7, 2024). OCC, Federal Reserve Board, FDIC, NCUA, CFPB and FHFA, via GovInfo.
- Agencies Issue Final Rule to Help Ensure Credibility and Integrity of Automated Valuation Models (July 17, 2024). Consumer Financial Protection Bureau.
- Agencies issue final rule to help ensure credibility and integrity of automated valuation models (July 17, 2024). Board of Governors of the Federal Reserve System.
- Action Plan to Advance Property Appraisal and Valuation Equity (March 2022). Interagency Task Force on Property Appraisal and Valuation Equity, HUD archives.