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| Cost, Value, and Hybrid-Based
Underwriting Criteria Author: M. Atef Sharkawy and Walter C. Barnes Start Page: 169 Abstract: This study examines
the correlation between loan-to-value ratios and probability of default, and tests
alternative cost-based default models, using data from the portfolios of FSLIC and a major
regional lender. The theoretical premises for the research are synthesized from a review
of the linkages between supply and demand for space, and for capital; and of the appraisal
process and its reliability. Two major conclusions are drawn from statistical evidence:
(1) there is no apparent correlation between value-based underwriting criteria and between
default, and (2) hard cost-based criteria correlate closely to probability of default. |
