Contemporaneous Loan Stress and Termination Risk in the CMBS Pool: How "Ruthless" Is Default?
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Wheaton_Contemporaneous CMBS_REE2_012907.pdf
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Author(s)
Seslen, Tracey
Wheaton, William C.
Date Issued
July 2010
Journal
Real Estate Economics
Publisher
American Real Estate and Urban Economics Association
Citation
Seslen, Tracey, and William C. Wheaton. “Contemporaneous Loan Stress and Termination Risk in the CMBS Pool: How ‘Ruthless’ Is Default?” Real Estate Economics 38.2 (2010) : 225-255.
Version
Author's final manuscript
Abstract
This study analyzes the impact of contemporaneous loan stress on the termination of loans in the commercial mortgage-backed securities pool from 1992 to 2004 using a novel measure, based on changes in net operating incomes and property values at the metropolitan statistical area-property-type-year level. Employing a semi-parametric competing risks model for a variety of specifications, we find that the probability of default is extremely low even at very high levels of stress, although the coefficient estimates of greatest interest are very statistically significant. These results suggest substantial lender forbearance and are consistent with previous research that models default as a “gradual dynamic process” rather than a “ruthless” exercise once “in the money.”
MIT Department
Massachusetts Institute of Technology. Center for Real Estate
Massachusetts Institute of Technology. Department of Economics
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Creative Commons Attribution-Noncommercial-Share Alike 3.0
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DOI of Published Version
https://doi.org/10.1111/j.1540-6229.2010.00266.x
