Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market
47 Pages
Posted: 15 Dec 2013
Georgetown University - Department of Finance
Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)
Georgia State University - J. Mack Robinson College of Business
There 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:
Suggested Citation
Agarwal, Sumit and Ben-David, Itzhak and Yao, Vincent W., 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
