Under the 2024 interagency AVM quality control rule, how is an automated valuation model defined?
Correct Answer
A) A computerized model used by mortgage originators and secondary market issuers to value a consumer's principal dwelling
The rule defines an AVM as any computerized model used by mortgage originators and secondary market issuers to determine the value of a consumer's principal dwelling collateralizing a mortgage. Income-producing commercial property is outside that definition, an appraisal by an appraiser is a different product, and a regional price index does not value a particular dwelling.
Why This Is the Correct Answer
Option A is correct because the rule defines an AVM as any computerized model used by mortgage originators and secondary market issuers to determine the value of a consumer's principal dwelling collateralizing a mortgage. The definition ties the model to residential mortgage collateral that is the consumer's principal dwelling.
Why the Other Options Are Wrong
Option B: A computerized model used by commercial lenders and loan servicers to value income-producing real estate securing a loan
Option B describes a model used by commercial lenders and servicers to value income-producing real estate. The rule's definition is limited to models valuing a consumer's principal dwelling securing a mortgage.
Option C: Any appraisal report that a certified appraiser prepares with the help of valuation software
Option C describes an appraisal report a certified appraiser prepares with valuation software. That is an appraisal, not an AVM, and the rule excludes AVM use by appraisers in developing appraisals.
Option D: A published index that measures regional home-price trends across a series of periods
Option D describes a published index of regional home-price trends. Such an index measures market movement rather than determining the value of a specific consumer's principal dwelling.
Computer, model, principal dwelling
An AVM under the rule is a computerized model that values a consumer's principal dwelling securing a mortgage.
How to use: Use these three words to test whether a valuation product fits the rule's AVM definition.
Exam Tip
If an option changes the property to commercial or the product to an appraisal, it no longer matches the rule's AVM definition.
Common Mistakes to Avoid
- -Applying the AVM rule definition to commercial property models
- -Confusing a price index with an AVM
Concept Deep Dive
Analysis
This definition question checks the three elements of an AVM under the rule: a computerized model, used by mortgage originators or secondary market issuers, to value a consumer's principal dwelling securing a mortgage. Each distractor changes one element, such as the property type, the product or the subject of the valuation.
Background Knowledge
The definition comes from section 1125 of FIRREA as added by the Dodd-Frank Act. The agencies took a principles-based view, asking whether a product is automated, is a model, and is designed to estimate the value of a consumer's principal dwelling collateralizing a mortgage.
Real-World Application
A lender reviewing its valuation tools classifies its home-value model for owner-occupied mortgages as a covered AVM. Its commercial property cash-flow tool falls outside this definition and is managed under general model risk practices.
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