commercial mortgage

Commercial Mortgage Delinquency, Foreclosure and Reinstatement

Commercial mortgage default is modeled in two stages. First, a mortgage becomes delinquent, when the borrower stops making payments. Second, the delinquency is either reinstated (payments are resumed) or the lender forecloses. The results of the empirical estimations have implications for lenders’ monitoring functions. Lenders should use the critical variables of loan-to-value ratio, debt cover...

An Options-Based Model for Valuing Commercial Mortgage Loans

DRAFT Not to be distributed without permission of the authors. This work is preliminary and subject to modification. Summary This white paper provides a non-technical introduction to the Zealand Commercial Mortgage Loan Pricing Model. The accurate valuation of commercial mortgages is a complex and challenging task. The roots of this difficulty are the complex set of interacting options embedded...

Commercial Mortgage Workout Strategy and Conditional Default Probability: Evidence from Special Serviced CMBS Loans

This study recognizes that commercial mortgage default is not a one-step process and examines a previously unexplored aspect in the whole default process, that is the stage between the initial delinquency and default. We distinguish the servicers' behavior from the borrowers' behavior. A multinomial logit model is applied to analyze the servicers' choice of workout options and a proportional ha...

Credit Risk and Subordination Levels in Commercial Mortgage-backed Securities (CMBS)

What is Subordination About? Credit Risk and Subordination Levels in Commercial Mortgage-backed Securities (CMBS)

Subordination is designed to provide credit risk protection for senior CMBS tranches by allocating the initial credit losses to the more junior tranches. Subordination level should in theory reflect the underlying credit risk of the CMBS pool. In this paper, we test the hypothesis that subordination is purely about credit risk as intended. We find a very weak relation between subordination leve...

Macroeconomic Conditions, Systematic Risk Factors, and the Time Series Dynamics of Commercial Mortgage Credit Risk

I study the time series dynamics of commercial mortgage credit risk and the unobservable systematic risk factors underlying those dynamics. A first-passage model with equilibrium macroeconomic dynamics is presented, and the default hazard rate is solved. The solutions are then put into a state space form and estimated with real world commercial mortgage performance data using extended Kalman fi...