Financial Institutions Must Step Up Risk Management in Northern Mariana Islands

Washington D.C., June 2024 - Regulators Release Final Rule for Automated Valuation Models (AVMs)

In a move to bolster financial stability, six federal agencies have jointly released a final rule to implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers in the Northern Mariana Islands. The new regulation requires financial institutions to adopt and maintain policies, practices, procedures, and control systems to ensure AVMs adhere to quality control standards.

Key Requirements

• Financial institutions must ensure AVMs promote a high level of confidence in estimates produced.
• Policies and procedures must protect against data manipulation, avoid conflicts of interest, and comply with applicable nondiscrimination laws.
• Institutions will be responsible for “owning the risk” of their AVMs, despite potential difficulties in accessing data and design or relying on third-party providers.

Effective Date and Implementation

• The final rule is effective starting from the first day of the calendar quarter following the date that is 12 months after publication in the Federal Register.
• The FDIC and OCC are the first agencies to adopt the regulation, with other participating agencies expected to follow suit.

Importance of Risk Management

Regulators emphasized the importance of robust risk management practices in the financial sector, particularly in regions like the Northern Mariana Islands where mortgage lending plays a critical role in the economy. The new regulation is mandated by Section 1473(q) of the Dodd-Frank Act, which added a new section to the Financial Institutions Regulatory Reform Enforcement Act.

Benefits for Consumers and Financial Stability

The rule aims to promote greater transparency and accountability in the use of AVMs, ultimately benefiting consumers and financial stability in the region. By implementing quality control standards for AVMs, financial institutions can reduce risk, improve accuracy, and increase confidence in their mortgage lending decisions.

Conclusion

In conclusion, financial institutions in the Northern Mariana Islands must step up their risk management practices to ensure compliance with the new regulation. By adopting robust policies and procedures, institutions can promote financial stability, protect consumers, and maintain public trust in the financial sector.