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Appraisal Quality and Residential Mortgage Default: Evidence from Alaska

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  • LaCour-Little, Michael
  • Malpezzi, Stephen

Abstract

We empirically examine the effect of appraisal quality on subsequent mortgage loan performance using data from the high volatility housing market of Alaska in the 1980s. We develop measures of appraisal quality by computing the residual between a hedonic estimate of house value using available information from other appraisals compared to actual ex ante appraised value. We then estimate proportional hazard models of mortgage default and find that several measures of appraisal quality, particularly appraised value in excess of hedonic estimates, are significantly related to default risk. Using valuations subsequent to loan default, we are also able to evaluate how well house price indices perform in terms of estimating current loan-to-value and offer some additional evidence on the controversy over the role of net equity versus trigger events as determinants of mortgage default. We also show that defaults are related to ex ante measures of housing market conditions, with additional implications for underwriting policies and the current industry trend away from traditional appraisal and toward automated valuation. Copyright 2003 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Real Estate Finance & Economics.

Volume (Year): 27 (2003)
Issue (Month): 2 (September)
Pages: 211-33

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Handle: RePEc:kap:jrefec:v:27:y:2003:i:2:p:211-33

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Web page: http://www.springerlink.com/link.asp?id=102945

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Cited by:
  1. Ebrahim, M. Shahid, 2009. "Can an Islamic model of housing finance cooperative elevate the economic status of the underprivileged?," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 864-883, December.
  2. Neil Bhutta, 2008. "Giving credit where credit is due? the Community Reinvestment Act and mortgage lending in lower-income neighborhoods," Finance and Economics Discussion Series 2008-61, Board of Governors of the Federal Reserve System (U.S.).
  3. Carlos Pestana Barros & Zhongfei Chen & Luis A. Gil-Alana, 2011. "Housing Sales in Urban Beijing," Faculty Working Papers 10/11, School of Economics and Business Administration, University of Navarra.
  4. David Downs & Z. G√ľner, 2012. "Information Producers and Valuation: Evidence from Real Estate Markets," The Journal of Real Estate Finance and Economics, Springer, vol. 44(1), pages 167-183, January.
  5. Agarwal, Sumit & Ben-David, Itzhak & Yao, Vincent, 2012. "Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real-Estate Market," Working Paper Series 2012-29, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
  6. repec:ise:isegwp:wp062011 is not listed on IDEAS

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