Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market

47 Pages Posted: 15 Dec 2013

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

Vincent Yao

Georgia State University - J. Mack Robinson College of Business

Multiple version iconThere are 3 versions of this paper

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

Agarwal, Sumit and Ben-David, Itzhak and Yao, Vincent, Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market (December 13, 2013). Available at SSRN: https://ssrn.com/abstract=2367433 or http://dx.doi.org/10.2139/ssrn.2367433

Sumit Agarwal (Contact Author)

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Itzhak Ben-David

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)

HOME PAGE: http://https://u.osu.edu/ben-david.1/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/

Vincent Yao

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
267
Abstract Views
3,681
Rank
109,578
PlumX Metrics