Commercial Mortgage-backed Securities (CMBS) Terminations, Regional and Property-Type Risk

Yongheng Deng, John M. Quigley () and Anthony B. Sanders
Additional contact information
Yongheng Deng: U of Southern California
Anthony B. Sanders: Ohio State U

Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics

Abstract: Option theory predicts that mortgage default or prepayment will be exercised if the call or put option is “in the money.” We extend our analysis to commercial mortgages using data from commercial mortgage-backed securities (CMBS). The paper presents a model of the competing risks of mortgage termination (default and prepayment) using data from commercial mortgage-backed securities (CMBS) deals. Our results show that the option model explains both default and prepayment for commercial mortgages. We find that loan specific variables (such as loan-to-value ratio, debt service coverage ratio, loan-rate spread and prepayment prevention) are important explanatory variables for both default and prepayment. We also find that default and prepayment vary across regions of the country; given that regional economies do not move in perfect lock-step, we would expect there to be cross-sectional variation in default rates. However, the degree of variation across regions in terms of prepayments is not as predictable. The largest differences are across property types, both in terms of default and prepayment risk.

Date: Written
View list of references

Downloads: (external link)
http://www.cob.ohio-state.edu/fin/dice/papers/2006/2006-24.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ecl:ohidic:2006-24

Access Statistics for this paper

More papers in Working Paper Series from Ohio State University, Charles A. Dice Center for Research in Financial Economics
Contact information at EDIRC.
Series data maintained by ().