Differences Across Originators in CMBS Loan Underwriting
35 Pages Posted: 19 Mar 2011
Date Written: January 22, 2011
There is considerable heterogeneity in the organizational structures of CMBS loan originators and in their incentives for underwriting risky loans. We treat an originator's organizational type - commercial bank, investment bank, insurance company, finance company, conduit lender, or foreign-owned entity - as a proxy for incentives related to warehousing risk and balance-sheet lending. After controlling for observable credit characteristics of over 30,000 loans securitized into CMBS since 1999, we find considerable differences in loan performance across originator types. The results suggest that moral hazard - captured by lack of warehousing risk - negatively affected the quality of loans underwritten by conduit lenders. On the other hand, despite the potential for engaging in adverse selection, balance-sheet lenders - commercial banks, insurance companies and finance companies - actually underwrote higher-quality loans.
Keywords: Commercial Mortgage Backed Securities, Organizational Type, Moral Hazard
JEL Classification: G21, G32, D82
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