IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v58y2023ipcs1544612323010498.html
   My bibliography  Save this article

Mortgage lending valuation bias under housing price changes and loan-to-value regulations

Author

Listed:
  • Reite, Endre J.

Abstract

We examine valuation bias, regulatory loan-to-value limits, and real estate price fluctuations using unique data from two Norwegian banks. We investigate whether automated valuation methods significantly affect foreclosure discounts. Banks using multiple valuation methods tend to report loan-to-value bias by selecting the most optimistic value, underestimating and underreporting risk in declining property markets. This risk increases near regulatory loan-to-value limits, and the findings are robust across homogenous and heterogeneous properties. We recommend reporting automated valuation estimates for all applicable properties and disclosing the percentage of valuations done with different methods to improve transparency and risk comparability between banks.

Suggested Citation

  • Reite, Endre J., 2023. "Mortgage lending valuation bias under housing price changes and loan-to-value regulations," Finance Research Letters, Elsevier, vol. 58(PC).
    • Handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323010498
    DOI: 10.1016/j.frl.2023.104677
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612323010498
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.frl.2023.104677?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:58:y:2023:i:pc:s1544612323010498. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/frl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.