Abstract

http://ssrn.com/abstract=1702297
 
 

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


Craig Furfine


Kellogg School of Management

June 30, 2013


Abstract:     
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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