Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market
47 Pages Posted: 15 Dec 2013
There are 3 versions of this paper
Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market
Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market
Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market
Date Written: December 13, 2013
Abstract
Financially constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. We document that the average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, around critical leverage thresholds, and for transactions mediated through a broker. Mortgages with inflated valuations default more often. Lenders account for 60-90% of the bias through pricing.
Keywords: collateral valuation, lending, banks, loans, default, financial crisis
JEL Classification: G01, G21
Suggested Citation: Suggested Citation
Register to save articles to
your library
Recommended Papers
-
Who Facilitated Misreporting in Securitized Loans?
By John M. Griffin and Gonzalo Maturana
-
Are Young Borrowers Bad Borrowers? Evidence from the Credit CARD Act of 2009
By Peter Debbaut, Andra C. Ghent, ...
-
How Constraining Are Limits to Arbitrage?
By Alexander Ljungqvist and Wenlan Qian
-
Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class
By Manuel Adelino, Antoinette Schoar, ...
-
Systematic Mistakes in the Mortgage Market and Lack of Financial Sophistication
By Sumit Agarwal, Itzhak Ben-david, ...
-
The Real Effects of Credit Default Swaps
By Andras Danis and Andrea Gamba