Appraisal Inflation: Evidence from 2009 GSE HVCC Intervention

54 Pages Posted: 27 Sep 2014 Last revised: 12 Apr 2018

See all articles by Lan Shi

Lan Shi

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC)

Date Written: September 1, 2014

Abstract

Appraisal inflation is a prominent aspect of lax underwriting practice. The GSE May 2009 Home Valuation Code of Conduct (HVCC) aims to prohibit lenders from influencing appraisers. Refinance loans, without a transaction price, are potentially more susceptible to appraisal inflation than purchase loans. We use GSE refinance loans as our treatment group and non-GSE refinance loans as the control group, and find that GSE refinance loans originated after May 2009 have lower default rates than non-GSE refinance loans. We further measure the appraisal inflation (bias) as the difference between the appraisal value in a 2009 refinance transaction and the actual transaction price in an earlier purchase transaction for the same property adjusted for local housing value changes. We find that the reduction in appraisal bias was larger for GSE refinance loans than for non-GSE refinance loans. This paper quantifies the “contribution” of appraisal inflation in poor loan underwriting standards and highlights the importance of unbiased and independent appraisal.

Keywords: Appraisal, Appraisal Bias, Appraisal Inflation, Appraisal Independence, GSE, HVCC

JEL Classification: D82, G21, G28

Suggested Citation

Shi, Lan and Zhang, Yan, Appraisal Inflation: Evidence from 2009 GSE HVCC Intervention (September 1, 2014). Journal of Housing Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2497653

Lan Shi (Contact Author)

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street SW
Washington, DC 20219
United States

Yan Zhang

Government of the United States of America - Office of the Comptroller of the Currency (OCC) ( email )

400 7th St. SW
Washington, DC 20219
United States
202-6495492 (Phone)

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