Comparing Securitized and Balance Sheet Loans: Size Matters

Do securitized loans differ from loans held on lenders’ balance sheets? If so, why? We assemble a unique dataset of commercial mortgages with information on loan characteristics at origination and subsequent performance. The most significant difference between securitized (CMBS) and balance sheet loans is the loan size. The largest loans are 42 percentage points more likely to be securitized than the smallest loans, which is consistent with diversification being a key motive for securitization. A structural model reveals little evidence that securitized loans carry greater distress risk. However, CMBS defaults are less likely to get resolved, pointing to agency issues.