Appraising Home Purchase Appraisals

Paul S. Calem, Jeanna Kenney, Lauren Lambie-Hanson and Leonard Nakamura

No 18-28, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Home appraisals are produced for millions of residential mortgage transactions each year, but appraised values are rarely below the purchase contract price: Some 30% of appraisals in our sample are exactly at the home price (with less than 10% of them below it). We lay out a basic theoretical framework to explain how appraisers? incentives within the institutional framework that governs mortgage lending lead to information loss in appraisals (that is, appraisals set equal to the contract price). Consistent with the theory, we observe a higher frequency of appraisal equal to contract price and a higher incidence of mortgage default at loan-to-value boundaries (notches) above which mortgage insurance rates increase. Appraisals appear to be less informative for default risk measurement compared with automated valuation models.

Keywords: information; mortgage; regulation; appraisal; mortgage defaults; foreclosures (search for similar items in EconPapers)
JEL-codes: D81 G14 G21 G28 L85 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2018-12-27
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Appraising home purchase appraisals (2021)
Working Paper: Appraising Home Purchase Appraisals (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:18-28

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DOI: 10.21799/frbp.wp.2018.28

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