Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market

Sumit Agarwal (), Itzhak Ben-David and Vincent Yao
Additional contact information
Sumit Agarwal: National University of Singapore, Singapore 119245

Management Science, 2015, vol. 61, issue 9, 2220-2240

Abstract: Financially constrained borrowers have the incentive to influence the appraisal process in order to increase borrowing or reduce the interest rate. We document that the average valuation bias for residential refinance transactions is above 5%. The bias is larger for highly leveraged transactions, around critical leverage thresholds, and for transactions mediated through a broker. Mortgages with inflated valuations default more often. Lenders account for 60%–90% of the bias through pricing. This paper was accepted by Wei Jiang, finance .

Keywords: collateral valuation; lending; banks; loans; default; financial crisis (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.2014.2002 (application/pdf)

Related works:
Working Paper: Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market (2013)
Working Paper: Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real-Estate Market (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:61:y:2015:i:9:p:2220-2240

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().