Under the 2024 interagency AVM quality control rule, which of the following AVM uses is covered by the rule's quality control standards?
Correct Answer
B) A lender deciding whether to raise the credit limit on a HELOC secured by the borrower's principal residence
The rule covers AVMs used in credit decisions on mortgages secured by a consumer's principal dwelling, and a credit decision includes changing the credit limit on a line of credit. A vacation home is not a principal dwelling, so the HELOC in option C falls outside the rule. Portfolio monitoring and an appraiser's use of an AVM in developing an appraisal are expressly excluded uses.
Why This Is the Correct Answer
Option B is correct because a credit decision under the rule includes a decision to change the credit limit on a line of credit. The HELOC is secured by the borrower's principal residence, which meets the rule's principal-dwelling requirement. No exclusion applies, so the lender's AVM use must meet the quality control standards.
Why the Other Options Are Wrong
Option A: A lender tracking value trends across its existing portfolio of mortgages
Option A describes a lender tracking value trends across its existing mortgage portfolio, which is monitoring. The rule expressly does not apply to AVMs used in monitoring the quality or performance of mortgages, because the credit decision has already been made.
Option C: A lender deciding whether to raise the credit limit on a HELOC secured by the borrower's vacation home
Option C involves a HELOC secured by a vacation home. Although raising a credit limit is a credit decision, the rule defines AVMs by reference to a consumer's principal dwelling, and a vacation or second home is not a principal dwelling.
Option D: A certified appraiser running a model check while developing an appraisal for the lender
Option D describes a certified appraiser running a model check while developing an appraisal. The rule expressly excludes AVM use in the development of an appraisal by a certified or licensed appraiser.
Decision plus principal dwelling
Ask two questions: is a credit or securitization decision being made, and is the collateral the borrower's principal dwelling? Both answers must be yes, and the use must not be on the exclusion list.
How to use: Use this two-question filter whenever a question asks whether a particular AVM use falls under the 2024 rule.
Exam Tip
Watch for a single changed fact, such as a second home instead of a principal residence, that moves an otherwise covered use outside the rule.
Common Mistakes to Avoid
- -Assuming any AVM use by a regulated lender is covered
- -Forgetting that line-of-credit limit changes count as credit decisions
- -Treating a second home as a principal dwelling
Concept Deep Dive
Analysis
This question tests the two scope filters of the 2024 AVM rule: the AVM must be used in a credit decision or covered securitization determination, and the collateral must be the consumer's principal dwelling. A good approach is to run each option through both filters and then check the express exclusions for monitoring and for appraisers developing appraisals. Only the HELOC on the principal residence passes all of these tests.
Background Knowledge
The 2024 rule implements section 1125 of FIRREA, added by the Dodd-Frank Act, and applies to mortgage originators and secondary market issuers. It reaches AVMs used to value a consumer's principal dwelling in credit decisions, such as originating, modifying or changing a mortgage or line of credit, and in covered securitization determinations. It excludes portfolio monitoring, reviews of completed value determinations and appraisers' use in developing appraisals.
Real-World Application
A bank's home equity team uses an AVM to approve a credit-line increase on a borrower's primary home and, the same week, to review a line on the borrower's lake cottage. Only the first use falls under the bank's AVM rule controls, although sound practice may lead the bank to use similar controls for both.
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