Download this Paper Open PDF in Browser

Collateral Misreporting in the RMBS Market

60 Pages Posted: 24 Aug 2017  

Samuel A. Kruger

University of Texas at Austin - Department of Finance

Gonzalo Maturana

Emory University - Goizueta Business School

Date Written: August 21, 2017


We identify collateral misreporting by comparing non-agency securitized residential mortgage appraisals to automated valuation model (AVM) valuations and purchase prices. Appraisals exceed AVM valuations 60% of the time and are biased upward by an average of almost 5% relative to AVM valuations. For purchase loans, appraisals cluster at and slightly above purchase prices and virtually never fall below purchase prices. This indicates that half of purchase loan appraisals are biased upward, and average appraisal bias is even larger for refinance loans. Appraisal bias is correlated with subsequent delinquency, and if loan-to-value ratios were based on AVM valuations rather than appraisals, 14% of loans would have origination loan-to-value ratios above 100%, and 17% to 25% of loans would have combined loan-to-value ratios above 100%. Simulations and analysis of unfunded loan application appraisals indicate that appraisal bias comes from intentional appraisal inflation as opposed to selection bias. Finally, appraisal bias varies across loan officers, mortgage brokers, and appraisers; and past appraisal bias predicts subsequent appraisal bias, which suggests that appraisal bias is related to intentional decisions.

Keywords: appraisal bias, misreporting, mortgage, mortgage-backed security

JEL Classification: G21, G23, R30

Suggested Citation

Kruger, Samuel A. and Maturana, Gonzalo, Collateral Misreporting in the RMBS Market (August 21, 2017). Available at SSRN:

Samuel Kruger

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States

Gonzalo Maturana (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States


Paper statistics

Abstract Views