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The impact of the home valuation code of conduct on appraisal and mortgage outcomes

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  • Lei Ding
  • Leonard I. Nakamura

Abstract

Supersedes Working Paper 14-23. The accuracy of appraisals came into scrutiny during the housing crisis, and a set of policies and regulations was adopted to address the conflict-of-interest issues in the appraisal practices. In response to an investigation by the New York State Attorney General?s office, the Home Valuation Code of Conduct (HVCC) was agreed to by Fannie Mae, Freddie Mac, and the Federal Housing Finance Agency. Using unique data sets that contain both approved and nonapproved mortgage applications, this study provides an empirical examination of the impact of the HVCC on appraisal and mortgage outcomes. The results suggest that the HVCC has led to a reduction in the probability of inflated valuations, although valuations remained inflated on average, and induced a significant increase in the incidence of low appraisals. The well-intentioned HVCC rule made it more difficult to obtain mortgages to purchase homes during the housing price crash, possibly exacerbating the fall in prices.

Suggested Citation

  • Lei Ding & Leonard I. Nakamura, 2015. "The impact of the home valuation code of conduct on appraisal and mortgage outcomes," Working Papers 15-28, Federal Reserve Bank of Philadelphia.
    • Handle: RePEc:fip:fedpwp:15-28
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    Cited by:

    1. Hamilton Fout & Nuno Mota & Eric Rosenblatt, 2022. "When Appraisers Go Low, Contracts Go Lower: The Impact of Expert Opinions on Transaction Prices," The Journal of Real Estate Finance and Economics, Springer, vol. 65(3), pages 451-491, October.
    2. Paul Calem & Jeanna Kenney & Lauren Lambie‐Hanson & Leonard Nakamura, 2021. "Appraising home purchase appraisals," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S1), pages 134-168, March.
    3. Agarwal, Sumit & Ambrose, Brent W. & Yao, Vincent W., 2020. "Can regulation de-bias appraisers?," Journal of Financial Intermediation, Elsevier, vol. 44(C).
    4. R. Kelley Pace & Raffaella Calabrese, 2022. "Ignoring Spatial and Spatiotemporal Dependence in the Disturbances Can Make Black Swans Appear Grey," The Journal of Real Estate Finance and Economics, Springer, vol. 65(1), pages 1-21, July.
    5. Eriksen, Michael D. & Fout, Hamilton B. & Palim, Mark & Rosenblatt, Eric, 2019. "The influence of contract prices and relationships on appraisal bias," Journal of Urban Economics, Elsevier, vol. 111(C), pages 132-143.
    6. Jessica Shui & Shriya Murthy, 2018. "Are Appraisal Management Companies Value-Adding? – Stylized Facts from AMC and Non-AMC Appraisals," FHFA Staff Working Papers 18-01, Federal Housing Finance Agency.
    7. Chris Cunningham & Kristopher Gerardi & Lily Shen, 2021. "The Double Trigger for Mortgage Default: Evidence from the Fracking Boom," Management Science, INFORMS, vol. 67(6), pages 3943-3964, June.
    8. Paul S. Calem & Lauren Lambie-Hanson & Leonard I. Nakamura, 2015. "Information losses in home purchase appraisals," Working Papers 15-11, Federal Reserve Bank of Philadelphia.
    9. Conklin, James N. & Frame, W. Scott & Gerardi, Kristopher & Liu, Haoyang, 2022. "Villains or scapegoats? The role of subprime borrowers in driving the U.S. housing boom," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    10. Paul E. Carrillo & William M. Doerner & William D. Larson, 2023. "House Price Markups and Mortgage Defaults," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(4), pages 747-782, June.
    11. James N. Conklin & N. Edward Coulson & Moussa Diop, 2023. "Distressed comps," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(1), pages 170-195, January.
    12. Michael D. Eriksen & Hamilton B. Fout & Mark Palim & Eric Rosenblatt, 2020. "Contract Price Confirmation Bias: Evidence from Repeat Appraisals," The Journal of Real Estate Finance and Economics, Springer, vol. 60(1), pages 77-98, February.
    13. Glennon, Dennis & Kiefer, Hua & Mayock, Tom, 2018. "Measurement error in residential property valuation: An application of forecast combination," Journal of Housing Economics, Elsevier, vol. 41(C), pages 1-29.
    14. James Conklin & N. Edward Coulson & Moussa Diop & Thao Le, 2020. "Competition and Appraisal Inflation," The Journal of Real Estate Finance and Economics, Springer, vol. 61(1), pages 1-38, June.
    15. James Conklin & Moussa Diop & Mingming Qiu, 2022. "Religion and Mortgage Misrepresentation," Journal of Business Ethics, Springer, vol. 179(1), pages 273-295, August.
    16. Samuel Kruger & Gonzalo Maturana, 2021. "Collateral Misreporting in the Residential Mortgage-Backed Security Market," Management Science, INFORMS, vol. 67(5), pages 2729-2750, May.
    17. Sonia Gilbukh & Andrew Haughwout & Rebecca J. Landau & Joseph Tracy, 2023. "The price‐to‐rent ratio: A macroprudential application," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 51(2), pages 503-532, March.
    18. Cem Demiroglu & Christopher James, 2018. "Indicators of Collateral Misreporting," Management Science, INFORMS, vol. 64(4), pages 1747-1760, April.

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    More about this item

    Keywords

    Property Valuation; Mortgage; Regulation; Appraisal;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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