A bank can only obtain imperfect information on the quality (creditworthiness) and behavior (payment behavior) of its borrower. Therefore, from their point of view, it is crucial whether a borrower has sufficient collateral to cover the credit default risk. Real estate is of particular importance here. This is because these are – fairly stable in value, and – their valuation can be made comparatively objectively. An increase in real estate assets thus increases the creditworthiness of a borrower. – This, in turn, leads to more real estate being purchased to improve creditworthiness, and real estate prices rise sharply as a result. Additional amplification may occur if expansionary monetary policy leads to a reduction in interest rates. – See collateral risk, land lending institution, loan liability, limited, developer, Home Mortgage Disclosure Act, real estate bubble, real estate credit constraint, inflation risk, credit channel, vacancy rate, low-interest-rate policy, zero interest rate, real estate investment trust, portfolio reshuffling, stealth policy, twenty-two credit. – Cf. Deutsche Bundesbank Monthly Report of July 2007, p. 20 f. (real estate as loan collateral).
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