Before final loan approval, a bank's quality control staff run an AVM to test the reasonableness of an appraisal already completed on a borrower's principal residence. Under the 2024 AVM quality control rule, is this AVM use covered?
Correct Answer
D) No; using an AVM to review a completed value determination is excluded
The rule excludes AVMs used in reviews of already completed determinations of collateral value, because the underlying appraisal or evaluation, not the review, determines the value. Timing does not matter: a review before final approval is still a review. The rule applies to mortgage originators and secondary market issuers, not to AVM vendors, so option C misstates who is regulated.
Why This Is the Correct Answer
Option D is correct because the rule does not apply to AVMs used in reviews of the quality of already completed determinations of collateral value. Here the appraisal is complete and the AVM is used to test its reasonableness, so the use is a review. The agencies explained that such a review is an independent quality control step rather than the value determination itself.
Why the Other Options Are Wrong
Option A: Yes; an AVM used at any point before final loan approval falls within the rule
Option A claims that an AVM used at any point before final approval is covered. The agencies stated that the rule makes no distinction based on when the review occurs, and reviews commonly take place before final approval, so timing alone does not bring the use within the rule.
Option B: Yes; the AVM result can influence the bank's decision to make the loan
Option B argues the use is covered because the AVM result can influence the decision to make the loan. The rule focuses on AVMs that determine collateral value, and the completed appraisal is what determines value here, so the review use remains excluded.
Option C: No; the rule governs AVM vendors rather than the lenders that use them
Option C says the rule governs AVM vendors rather than lenders. The rule applies to mortgage originators and secondary market issuers that use AVMs; commenters asked that it apply to vendors, but the agencies did not adopt that approach.
Review checks, it does not decide
An AVM that checks a finished appraisal or evaluation is reviewing, not deciding value. Reviewing is outside the rule whenever it happens.
How to use: Use this phrase when a question places an AVM after a completed appraisal or evaluation and asks about rule coverage.
Exam Tip
Identify what actually sets the collateral value in the scenario; if a completed appraisal or evaluation does, an AVM used to check it is a review use.
Common Mistakes to Avoid
- -Thinking reviews before closing are covered because they precede approval
- -Believing the AVM rule regulates AVM vendors directly
Concept Deep Dive
Analysis
The question tests the exclusion for reviews of completed collateral value determinations. The candidate must recognize that the appraisal, not the AVM check, sets the collateral value, and that the review serves as a separate quality control function. The timing of the review before final approval is a distractor, because the preamble states that timing does not change the result.
Background Knowledge
The 2024 AVM rule lists three excluded uses: monitoring mortgages or mortgage-backed securities, reviewing completed collateral value determinations, and an appraiser's development of an appraisal. Reviews are excluded because the underlying appraisal or evaluation determines value and the review checks that work independently.
Real-World Application
A lender's collateral review desk runs an AVM on each incoming appraisal and flags large gaps for a staff appraiser to examine. Those AVM runs are review uses outside the 2024 rule, although the lender's general model risk practices still apply.
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