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

Sumit Agarwal, Itzhak Ben-David and Vincent Yao

No 19606, NBER Working Papers from National Bureau of Economic Research, Inc

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; however, lenders partly account for the valuation bias through pricing.

JEL-codes: D03 D1 D10 D12 D14 D18 G01 G02 G17 G2 G21 G23 G30 K20 L85 R2 R21 R3 R31 R51 (search for similar items in EconPapers)
Date: 2013-10
New Economics Papers: this item is included in nep-ure
Note: AP CF LE LS POL
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Citations: View citations in EconPapers (6)

Published as “Collateral Valuation and Institutional Pressures: Evidence from the Residential Real-Estate Market” (with Ben-David, Z., and V. Yao), Management Science, 2015, Vol. 61(9), Pp.2220-2240

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Related works:
Journal Article: Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real Estate Market (2015) Downloads
Working Paper: Collateral Valuation and Borrower Financial Constraints: Evidence from the Residential Real-Estate Market (2012) Downloads
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