Semivariance of property value estimates as a determinant of default risk

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 tie.. 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 semiyariance in properly Value uncertainty is related Co default risk, Specifically subject properties that ace 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.