An Analysis of Underwriting and Appraisal Practices

  • June 19, 1978
  • • Written by: Calvin Bradford

Summer 1978, Vol 3, No 1

Abstract: Traditional view of the relationship between racial change and neighborhood decline, says Professor Bradford, have permeated the literature and practices of professional appraisers and underwriters. He analyzes the roots of contemporary models of racial change and decline to show that controversial views of the relationship among property values and neighborhood deterioration date back to the literature of the early 1930s. These beliefs are discussed in terms of empirical studies of the factors associated with mortgage default and foreclosure and the relationship between racial change and property values. While these studies have some methodological weaknesses, he finds that they do not support the existence of relationships between the racial composition of a community and either property values or lending risks. Given this lack of a body of empirical work to support the contemporary models, appraisers and lenders find themselves under increased pressure from regulators, community groups, legislators, and even the courts to revise these models and to support all underwriting decisions with hard data on risks and values. In the reply that follows, Pierre deVise questions both the premise and the methodology employed by Mr. Bradford and wonders why lenders should have to prove their innocence before anyone has demonstrated that a crime was indeed committed.