References (36)



Complexity and Loan Performance: Evidence from the Securitization of Commercial Mortgages

Craig Furfine

Kellogg School of Management

June 30, 2013

In the years preceding the recent financial crisis, issuances of commercial mortgage backed securities (CMBS) varied noticeably in their complexity. Analyzing a sample of approximately 40,000 commercial mortgage loans serving as the collateral for 334 CMBS deals issued between 2001 and 2007, I examine the relationship between deal complexity and loan performance. Controlling for observable loan characteristics, subsequent movements in commercial property prices, and the identities of key institutions involved in the deal, I find that loan performance is worse for loans packaged in more complex securitizations. At the same time, neither the price of a deal’s securities nor a deal’s risk retention (i.e. skin in the game) reflected that complexity correlates with lower loan quality. These findings present a puzzle for current theories of optimal security design.

Number of Pages in PDF File: 48

Keywords: complexity, securitization, CMBS

JEL Classification: G14, G21, G23

working papers series

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Date posted: November 4, 2010 ; Last revised: September 27, 2013

Suggested Citation

Furfine, Craig, Complexity and Loan Performance: Evidence from the Securitization of Commercial Mortgages (June 30, 2013). Available at SSRN: http://ssrn.com/abstract=1702297 or http://dx.doi.org/10.2139/ssrn.1702297

Contact Information

Craig Furfine (Contact Author)
Kellogg School of Management ( email )
Evanston, IL 60208
United States
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