Abstract
A taxonomic approach to field research was developed and utilized to support empirical and experimental research findings into the impact that incentives/pressures to overvalue have on systematic valuation bias. An expected no‐bias population was defined and valuation judgments from actual, real‐world appraisals were statistically tested against it. The judgments of appraisers presented with no incentive/pressure to over‐value were consistent with the no‐bias population, while the judgments of appraisers presented with incentive/pressure to over‐value were significantly incompatible with the defined no bias population. Santruka Taksonomijos metodas buvo išpletotas ir pritaikytas taikomajam tyrimui siekiant patvirtinti empirinius ir eksperimentinius tyrimu rezultatus, kad paskata arba spaudimas pervertinti yra sistemine paklaida. Buvo apibrežta tiketinoji nešališka imtis ir nustatytos statistines realios vertes. Vertinimai, kuriuose nebuvo paskatos ar spaudimo pervertinti, buvo suderinti su imtimi be sistemines paklaidos, o vertinimai su paskata ar spaudimu pervertinti buvo visiškai nesuderinti su apibrežta imtimi be sistemines paklaidos.
Highlights
This research, conducted and documented in 2004, demonstrated the existence of incentives/pressures for residential appraisers to provide favorable valuations
Residential mortgage originators, whose compensation is contingent upon originating loans, have an incentive to influence appraisers, and this study provided strong evidence and loud warning well in advance of the Liquidity Crisis of 2008 when such irresponsible agency behavior exacted terrible costs on worldwide financial markets
By reaping the benefits while bearing little of the costs, loan originators have a strong motivation to quietly maintain a system of appraisal incentives/ pressures that frustrates underwriting standards, overprices mortgage-backed assets, fuels speculative bubbles, and misrepresents the level of risk assumed by the investing community thereby setting markets up for the financial disaster
Summary
This research, conducted and documented in 2004, demonstrated the existence of incentives/pressures for residential appraisers to provide favorable valuations. Residential mortgage originators, whose compensation is contingent upon originating loans, have an incentive to influence appraisers, and this study provided strong evidence and loud warning well in advance of the Liquidity Crisis of 2008 when such irresponsible agency behavior exacted terrible costs on worldwide financial markets. Originators typically pass on this inflated default risk by selling residential originations to secondary mortgage market agents, such as Fannie Mae and Freddie Mac. By reaping the benefits while bearing little of the costs, loan originators have a strong motivation to quietly maintain a system of appraisal incentives/ pressures that frustrates underwriting standards, overprices mortgage-backed assets, fuels speculative bubbles, and misrepresents the level of risk assumed by the investing community thereby setting markets up for the financial disaster.
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