Bank and Nonbank Lenders and the Commercial Mortgage Market

Posted: 17 Jul 2002

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

John D. Benjamin

American University - Kogod School of Business

Peter T. Chinloy

American University - Department of Finance and Real Estate

Abstract

This paper develops an equilibrium model of the commercial mortgage market that includes the sequence form commitment to origination and allows testing for differences by type of lender. From borrowers, loan demand is based on the income yield, capital gains, and expectations about return distributions. Lenders use prices such as mortgage rates and their distributions, and quantities in underwriting standards. There are separate equilibria in the markets for loan commitments and originations. Bank and nonbank lenders are not restricted to the same lending technology, nor to the weights placed on mortgage rates as opposed to underwriting standards. Empirical results for the United States commercial mortgage market indicate that banks use interest rates in allocating credit while nonbanks rely on underwriting standards, notably the loan-to-value ratio. A consequence is that nonbanks have a clientele incentive towards making low cap rate loans compensated by low loan-to-value ratios.

Keywords: commercial mortgages, bank lending, underwriting standards, loan commitments, origination, credit allocation, loan-to-value ratio

Suggested Citation

Ambrose, Brent W. and Benjamin, John D. and Chinloy, Peter, Bank and Nonbank Lenders and the Commercial Mortgage Market. Journal of Real Estate Finance & Economics, Vol. 26, No. 1. Available at SSRN: https://ssrn.com/abstract=311870

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

John D. Benjamin (Contact Author)

American University - Kogod School of Business ( email )

4400 Massachusetts Avenue NW
Department of Finance
Washington, DC 20016
United States
(202) 885-1892 (Phone)
(202) 885-1946 (Fax)

Peter Chinloy

American University - Department of Finance and Real Estate ( email )

Kogod School of Business
4400 Massachusetts Ave., N.W.
Washington, DC 20016-8044
United States
202-885-1951 (Phone)
202-885-1992 (Fax)

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