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Semivariance of Property Value Estimates as a Determinant of Default Risk

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  • Thomas G. Noordewier
  • David M. Harrison
  • K. Ramagopal

Abstract

Standard practice in the residential mortgage underwriting industry is to estimate collateral values via independent appraisals conducted by third parties. This paper empirically examines the role of property value (i.e., appraisal) uncertainty as a determinant of default on residential mortgage loans. Based upon an analysis of 1,428 residential loans drawn from the portfolio of a national mortgage lender, we find evidence that semivariance in property value uncertainty is related to default risk. Specifically, subject properties that are valued above the sales price of recently sold “similar and proximate” properties show evidence of greater default risk. Interestingly, a variance (range) measure of property value uncertainty is not significantly related to default risk.

Suggested Citation

  • Thomas G. Noordewier & David M. Harrison & K. Ramagopal, 2001. "Semivariance of Property Value Estimates as a Determinant of Default Risk," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(1), pages 127-159.
    • Handle: RePEc:bla:reesec:v:29:y:2001:i:1:p:127-159
    DOI: 10.1111/1080-8620.00005
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    Cited by:

    1. Asish Saha & Hock-Eam Lim & Goh-Yeok Siew, 2021. "Housing Loan Repayment Behaviour in Malaysia: An Analytical Insight," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(2), pages 1-19, September.
    2. David Harrison & Michael Seiler, 2015. "The Paradox of Judicial Foreclosure: Collateral Value Uncertainty and Mortgage Rates," The Journal of Real Estate Finance and Economics, Springer, vol. 50(3), pages 377-411, April.
    3. Timothy Jones & Dean Gatzlaff & G. Stacy Sirmans, 2016. "Housing Market Dynamics: Disequilibrium, Mortgage Default, and Reverse Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 53(3), pages 269-281, October.
    4. Asish Saha & Hock-Eam Lim & Goh-Yeok Siew, 2021. "Housing Loan Repayment Behaviour in Malaysia: An Analytical Insight," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 20(2), pages 141-159, September.

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