My bias on high-risk mortgage loans

posted by
July 19, 2011
EconLog
by Arnold Kling  
Posted in Commentary

"Let me explain here my bias against cash-out refinances. When somebody purchases a home, they have an incentive to negotiate the lowest price that they can get for a home. Therefore, when the appraisal comes in at the sales price, I do not worry about the appraiser's judgment. Even if the appraiser did nothing to justify the price, the buyer is presumably not an idiot who would pay a big premium over market. But when it's a cash-out refi, then I am totally relying on the appraiser's judgment. And I know that the mortgage broker is going to 'shop the appraiser' until he gets the 'right' number." (07/19/11)

http://econlog.econlib.org/archives/2011/07/my_bias_on_high.html  

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