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Collateral Misreporting in the RMBS Market

56 Pages Posted: 24 Aug 2017 Last revised: 21 Nov 2017

Samuel Kruger

University of Texas at Austin - Department of Finance

Gonzalo Maturana

Emory University - Goizueta Business School

Date Written: November 20, 2017

Abstract

Securitized mortgage appraisals routinely target pre-specified valuations, 45% of purchase loan appraisals exactly equal purchase prices, and appraisals virtually never fall below purchase prices. As a result, appraisals exceed automated valuation model (AVM) valuations 60% of the time and are biased upward by an average of 5%. Appraisal bias predicts loan delinquency and RMBS losses and is priced at the loan level through higher interest rates, but it has essentially no impact on RMBS pricing. Selection bias simulations and unfunded loan application appraisals indicate that appraisal bias is intentional, and appraisal bias varies across loan officers, mortgage brokers, and appraisers.

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

JEL Classification: G21, G23, R30

Suggested Citation

Kruger, Samuel and Maturana, Gonzalo, Collateral Misreporting in the RMBS Market (November 20, 2017). Available at SSRN: https://ssrn.com/abstract=3023313 or http://dx.doi.org/10.2139/ssrn.3023313

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

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

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