Loan Characteristics as Predictors of Default in Commercial Mortgage Portfolios

This paper examines the role of loan characteristics in mortgage default probability for different mortgage lenders in the UK. The accuracy of default prediction is tested with two statistical methods, a probit model and linear discriminant analysis, using a unique dataset of defaulted commercial loan portfolios provided by sixty-six financial institutions. Both models establish that the attributes of the underlying real estate asset and the lender are significant factors in determining default probability for commercial mortgages. In addition to traditional risk factors such as loan-to-value and debt servicing coverage ratio lenders and regulators should consider loan characteristics to assess more accurately probabilities of default.

Commercial mortgage lending: standardization issues

The article states that a loan secured by commercial property (commercial mortgages), as one of the most popular types of corporate loans has a number of advantages compared to other types of borrowing: the borrower is able to quickly get the necessary amount of money for any need - business expansion, working capital, ability to Finance large deals, and the disposal of banks remains liquid assets, quick sale which will cover damages in case of default by the cus-tomer of the terms of the loan. It is confirmed that the product is characterized by specific risks, often resulting in refusal of credit or their manifestations in the course of servicing the debt: unac-ceptable for the lender level of capitalization and liquidity of the collateral, the degree of occupan-cy of commercial real estate and the level of indexing of interest rates on leases; rental impropriety of the object for commercial use; encumbrances accept collateral in other liabilities etc. It is noted that one of the ways to improve the process of commercial mortgage lending in order to reduce transaction risks is its standardization. In the Russian Federation, the Association of Russian Banks is developing banking standards, which to date has approved more than fifteen standards (most of them are banking business process quality standards and methodological documents). It is pro-posed to develop a Standard for the lending process secured by commercial real estate; a matrix of requirements for the components of this process is provided, reflecting the best practices of leading Russian banks working in the field of commercial mortgages. In using the Standard, stakeholders are both credit institutions and borrowers.

7. The Purchase Deed and Mortgage

The principal purpose of the purchase deed is to transfer the legal estate in the property from the seller to the buyer. The transfer of a legal estate is void unless it is made by deed. This chapter discusses types of purchase deed; joint representation of borrower and lender; commercial mortgages; the mortgage deed; and post-completion steps; and mortgage fraud.

7. The purchase deed and mortgage

The principal purpose of the purchase deed is to transfer the legal estate in the property from the seller to the buyer. The transfer of a legal estate is void unless it is made by deed. This chapter discusses types of purchase deed; joint representation of borrower and lender; commercial mortgages; the mortgage deed; and post-completion steps; and mortgage fraud.

7. The purchase deed and mortgage

The principal purpose of the purchase deed is to transfer the legal estate in the property from the seller to the buyer. The transfer of a legal estate is void unless it is made by deed. This chapter discusses types of purchase deed; joint representation of borrower and lender; commercial mortgages; the mortgage deed; and post-completion steps; and mortgage fraud.

7. The purchase deed and mortgage

The principal purpose of the purchase deed is to transfer the legal estate in the property from the seller to the buyer. The transfer of a legal estate is void unless it is made by deed. This chapter discusses types of purchase deed; joint representation of borrower and lender; commercial mortgages; the mortgage deed; and post-completion steps; and mortgage fraud.

The Return of the Loan: Commercial Mortgage Investing after the 2008 Financial Crisis

Zoe Greenwood, vice president at Foundation Investment Advisors, was glancing through the offering memorandum for a new commercial mortgage-backed securities (CMBS) deal on April 1, 2010, a time when the opportunities for commercial mortgage investors had been bleak to the point of comical. This new CMBS deal represented the first opportunity to buy CMBS backed by loans to multiple borrowers since credit markets had shut the securitization pipeline in June 2008.The offering gave Greenwood a new investment opportunity to suggest to her firm's latest client. She had planned to recommend an expansion in her client's traditional commercial mortgage business, but these new bonds looked intriguing. Could the new CMBS offer her client a superior risk-return tradeoff compared with making individual mortgage loans?After students have analyzed the case they will be able to: –Learn how to construct promised cash flows from both commercial mortgages and commercial mortgage-backed securities –Understand the benefits and costs of direct lending versus indirect lending (purchase of mortgage-backed bonds) –Underwrite commercial mortgage loans issued by others to identify potentially hidden risks –Evaluate at what price a mortgage-bond investment makes financial sense