Search Results
Showing results 1 to 10 of approximately 13.
(refine search)
Report
An Analysis of the Impact of the Commercial Real Estate Concentration Guidance
This paper analyzes aspects of the interagency guidance issued in 2006, titled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices.”1 The recent financial crisis and recession provide an opportunity to consider the relationship between the guidance and banks’ commercial real estate (CRE) concentrations and performance during the downturn. This paper also analyzes how the share of banking institutions with high levels of CRE concentration, as defined in the guidance, has changed over time (part 2); documents the effect of CRE concentrations on bank failures ...
Working Paper
Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market
There are two main creditors in commercial real estate: arm?s-length investors and banks. We model commercial mortgage-backed securities (CMBS) as the less informed source of credit. In equilibrium, these investors fund properties with a low probability of distress and banks fund properties that may require renegotiation. We test the model using the 2007-2009 collapse of the CMBS market as a natural experiment, when banks funded both collateral types. Our results show that properties likely to have been securitized were less likely to default or be renegotiated, consistent with the model. ...
Working Paper
Differences across originators in CMBS loan underwriting
Differences in the organizational structure of CMBS loan originators may reflect differences in the incentives they face for underwriting risky loans. We treat an originator's type--that is, commercial bank, investment bank, insurance company, finance company, conduit lender, or foreign-owned entity--as a proxy for incentives related to warehousing risk, balance sheet lending, and regulatory constraints. After controlling for observable credit characteristics of over 30,000 loans securitized into CMBS after 1999, we find considerable differences in loan performance across originator types. ...
Working Paper
Consumption responses to permanent and transitory shocks to house appreciation
We estimate the marginal propensity to consume (MPC) out of permanent and transitory shocks to house price appreciation. We consider two different models under which those shocks may affect consumption. In the first one, housing is a risky asset. In the second one, housing has a role as a consumption and as an investment good. In both, changes in the rate of house price appreciation may affect nonhousing consumption. Shocks to appreciation rates may happen when increases in future house prices are expected to differ from the current ones because heterogeneity, market failures or errors in ...
Working Paper
Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans
We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, ...
Working Paper
Recourse as Shadow Equity: Evidence from Commercial Real Estate Loans
We study the role that recourse plays in the commercial real estate loan contracts of the largest U.S. banks. We find that recourse is valued by lenders and is treated as a substitute for conventional equity. At origination, recourse loans have rate spreads that are at least 20 basis points lower and loan-to-value ratios that are around 3 percentage points higher than non-recourse loans. Dynamically, recourse affects loan modification negotiations by providing additional bargaining power to the lender. Recourse loans were half as likely to receive accommodation during the COVID-19 pandemic, ...
Conference Paper
Differences across originators iin CMBS loan underwritten
Working Paper
Nominal mortgage contracts and the effects of inflation on portfolio allocation
Households who wish to extract home equity through refinancing their mortgage face a hidden transaction cost. The real value of the fixed nominal mortgage payment declines over time with inflation. The change in the real value of the mortgage payments from taking on a new mortgage is positive and an increasing function of inflation; higher inflation thus discourages households from re-balancing their portfolio as frequently as they would otherwise. The life cycle model developed in this paper demonstrates how the share of total wealth held in housing is sensitive to the rate of inflation, ...
Working Paper
Intermediary Segmentation in the Commercial Real Estate Market
Banks, life insurers, and commercial mortgage-backed securities (CMBS) lenders originate the vast majority of U.S. commercial real estate (CRE) loans. While these lenders compete in the same market, they differ in how they are funded and regulated, and therefore specialize in loans with different characteristics. We harmonize loan-level data across the lenders and review how their CRE portfolios differ. We then exploit cross-sectional differences in loan portfolios to estimate a simple model of frictional substitution across lender types. The substitution patterns in the model match well the ...
Discussion Paper
Nonresidential construction spending is likely not as weak as it seems
Unlike any other major component of GDP, private investment in nonresidential structures excluding drilling and mining (henceforth "NRS") has steadily declined since the start of 2020. Figure 1 shows the evolution of GDP as well as the main components of private domestic final demand since 2019.