Semivariance of property value estimates as a determinant of default risk

Standard practice in the residential mortgage underwriting industry is to e stimate collateral values via independent appraisals conducted by third par ties. This paper empirically examines the role of property value tie.. appr aisal) uncertainty as a determinant of default on residential mortgage loan s. Based upon an analysis of 1,428 residential loans drawn from the portfol io of a national mortgage lender. we find evidence that semiyariance in pro perly Value uncertainty is related Co default risk, Specifically subject pr operties that ace valued above the sales price of recently sold "similar an d proximate" properties show evidence of greater default risk. Interestingl y, a variance (range) measure of property value uncertainty is not signific antly related to default risk.