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Contemporaneous Loan Stress and Termination Risk in the CMBS Pool: How “Ruthless” is Default?
Author(s) -
Seslen Tracey,
Wheaton William C.
Publication year - 2010
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/j.1540-6229.2010.00266.x
Subject(s) - forbearance , loan , economics , non performing loan , econometrics , probability of default , property (philosophy) , actuarial science , monetary economics , finance , credit risk , philosophy , epistemology
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.”