SFA Responds to Final Rule on Quality Control Standards for AVMs

The Structured Finance Association (SFA) submitted a formal request to the Consumer Financial Protection Bureau (CFPB), the Office of the Comptroller of the Currency (OCC), the Federal Housing Finance Agency (FHFA), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), and the Federal Reserve Board (FRB) for interpretive guidance on the final rule on Quality Control Standards for Automated Valuation Models (AVMs) (“AVM Rule”), set to take effect October 1, 2025.

The industry’s primary concern is that the broad language in the AVM Rule may unintentionally impose compliance obligations on underwriters of private-label mortgage-backed securities (PLMBS), which are typically broker-dealer entities that do not use AVMs directly to determine new collateral values. SFA argues that these duties should rest solely with the sponsor of the securitization, which is responsible for structuring the deal, preparing disclosures, and ordering AVMs. It should not rest with the underwriter, whose role as a broker-dealer is limited to marketing and selling the securities.

Key points:

• The AVM Rule applies to mortgage originators and “secondary market issuers” who use AVMs to make value determinations of residential mortgage collateral in “covered securitization determinations.”
• The term “secondary market issuer” is undefined in statute and ambiguously defined in the rule as any party that “creates, structures, or organizes” a mortgage-backed securities transaction.
• SFA contends that underwriters do not perform covered securitization determinations, nor do they make independent or joint use of AVMs with sponsors.
• SFA outlines several limited use cases of AVMs in PLMBS (e.g., review of origination appraisals, calculating LTV thresholds, securitizing seasoned loans, etc.), none of which involve the underwriter using AVMs to make value determinations.

SFA seeks an advisory opinion or interpretive letters confirming that underwriters of PLMBS are not “secondary market issuers” and have no independent obligation to comply with the AVM Rule, provided they do not directly use AVMs to determine new property values. Unclear regulatory interpretation could chill PLMBS market activity, which is why regulators should make clear that responsibility for AVM compliance should remain with the sponsor, aligning with established securities law and regulatory frameworks.