Trustee Affiliation and Servicer Oversight: Evidence from CMBS Markets
D'Lima, W and Lopez, LA, "Trustee affiliation and servicer oversight: Evidence from CMBS markets," Real Estate Economics, 2021, 49(3), pp. 699– 732. https://doi.org/10.1111/reec.12315
Posted: 22 Sep 2018 Last revised: 12 Aug 2021
Date Written: April 18, 2019
Abstract
We study the effect of a change in trustees' incentives to monitor servicers in CMBS markets. Our identification strategy rests on variation in servicer-trustee affiliation that arises from mergers. We present evidence that affiliation is associated with excessive principal and interest advances on delinquent loans that are not in the interest of bondholders. We observe that a servicer-trustee affiliation affects the waterfall cash flows of senior, mezzanine, and junior bond-tranches. Additionally, we find that affiliation increases the loss rate by $0.05 or $0.07 per dollar of outstanding debt and estimate an economic impact of $5.5 billion in market-wide liquidation losses.
Keywords: Securitization, Commercial Mortgages, Financial Intermediaries, Mergers, Trustee
JEL Classification: G2
Suggested Citation: Suggested Citation