Purpose: In the present research an innovative methodology for the assessment of the mortgage lending value is proposed and tested. The method developed tries to improve and to rationalize, within the canonical and derivative approach that is generally used by the sector operators, the appraisal of the percentage reduction to be applied to the market value. Design/methodology/approach: Taking into account that the European Mortgage Federation and the Basel Committee highlight the importance of information about the risks of properties to be loaned on, the Value at Risk (VaR) approach has been deepened for the assessment of the mortgage lending value, as a technique of risk analysis. With reference to the Italian context, the method elaborates the historical analysis of the property values detected in the 93 main Italian cities for the residential and the commercial intended uses in a significant time period (1967-2015), and allows to determine the reduction coefficients of the market value as a function of the central, semi-central and peripheral location of the property. Findings: The result is constituted by reduction coefficients of the market value for the derivative appraisal of the mortgage lending value. The coefficients obtained satisfy the need for a rational assessment of the property risk and for the appropriate spatial contextualization of the risk components related to the local demand and supply, eliminating the inconsistency and the danger of determining the mortgage lending value using a simple and lump-sum percentage deduction of the market value. Originality/value: The global economic crisis in the last decade, triggered by the 2007 US Sub-prime Mortgage Crisis and the consequent collapse of property values, has highlighted the need of high level professional skills in the appraisal of properties as securities for credit exposures. The method proposed for the assessment of the mortgage lending value allows to overcome the uncertainties underlying the determination of an independent value through indirect methods (income approach, cost approach) and to rationalize the appraisal of the risk in the traditional derivative approach through a flexible procedure, able to be adapted to any territorial context and to any intended use.

An empirical-deductive model for the assessment of the mortgage lending value of properties as securities for credit exposures / Tajani, Francesco; Morano, Pierluigi. - In: JOURNAL OF EUROPEAN REAL ESTATE RESEARCH. - ISSN 1753-9269. - STAMPA. - 11:1(2018), pp. 44-70. [10.1108/JERER-01-2017-0007]

An empirical-deductive model for the assessment of the mortgage lending value of properties as securities for credit exposures

Tajani, Francesco
;
Morano, Pierluigi
2018-01-01

Abstract

Purpose: In the present research an innovative methodology for the assessment of the mortgage lending value is proposed and tested. The method developed tries to improve and to rationalize, within the canonical and derivative approach that is generally used by the sector operators, the appraisal of the percentage reduction to be applied to the market value. Design/methodology/approach: Taking into account that the European Mortgage Federation and the Basel Committee highlight the importance of information about the risks of properties to be loaned on, the Value at Risk (VaR) approach has been deepened for the assessment of the mortgage lending value, as a technique of risk analysis. With reference to the Italian context, the method elaborates the historical analysis of the property values detected in the 93 main Italian cities for the residential and the commercial intended uses in a significant time period (1967-2015), and allows to determine the reduction coefficients of the market value as a function of the central, semi-central and peripheral location of the property. Findings: The result is constituted by reduction coefficients of the market value for the derivative appraisal of the mortgage lending value. The coefficients obtained satisfy the need for a rational assessment of the property risk and for the appropriate spatial contextualization of the risk components related to the local demand and supply, eliminating the inconsistency and the danger of determining the mortgage lending value using a simple and lump-sum percentage deduction of the market value. Originality/value: The global economic crisis in the last decade, triggered by the 2007 US Sub-prime Mortgage Crisis and the consequent collapse of property values, has highlighted the need of high level professional skills in the appraisal of properties as securities for credit exposures. The method proposed for the assessment of the mortgage lending value allows to overcome the uncertainties underlying the determination of an independent value through indirect methods (income approach, cost approach) and to rationalize the appraisal of the risk in the traditional derivative approach through a flexible procedure, able to be adapted to any territorial context and to any intended use.
2018
An empirical-deductive model for the assessment of the mortgage lending value of properties as securities for credit exposures / Tajani, Francesco; Morano, Pierluigi. - In: JOURNAL OF EUROPEAN REAL ESTATE RESEARCH. - ISSN 1753-9269. - STAMPA. - 11:1(2018), pp. 44-70. [10.1108/JERER-01-2017-0007]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11589/114322
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