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Trustee affiliation and servicer oversight: Evidence from CMBS markets
Author(s) -
D'Lima Walter,
Lopez Luis Arturo
Publication year - 2020
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12315
Subject(s) - liberian dollar , cash flow , debt , economics , incentive , principal (computer security) , cash , interest rate , monetary economics , business , finance , market economy , computer science , operating system
We study the effect of a change in trustees' incentives to monitor servicers in CMBS markets. Our identification strategy rests on variation in servicer–trustee affiliation that arises from mergers. We present evidence that affiliation is associated with excessive principal and interest advances on delinquent loans that are not in the interest of bondholders. We observe that a servicer–trustee affiliation affects the waterfall cash flows of senior, mezzanine, and junior bond‐tranches. Additionally, we find that affiliation increases the loss rate by $0.05 or $0.07 per dollar of outstanding debt and estimate an economic impact of $5.5 billion in market‐wide liquidation losses.