Commercial Mortgage Delinquency, Foreclosure and Reinstatement

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finding suggests that it is possible for commercial mortgage loan servicers to distinguish amongthe potential outcomes of delinquent loans.5. Conclusion and ExtensionsAn innovation in this paper is to consider the models for delinquency and delinquencyoutcome separately. This is justified since the outcome of delinquency is not foregone –reinstatement is a more frequent resolution than foreclosure. The empirical models are estimatedusing a database from a single lender, with particularly accurate values for the loan-to-value ratioand the debt coverage ratio.The results of the empirical estimations have implications for lenders’ monitoringfunctions. Lenders should use the critical variables of loan-to-value ratio, debt coverage ratio andguarantee to identify expected delinquent loans. Within this pool of delinquent loans, these samecharacteristics can be used to predict the outcome, which could be reinstatement or foreclosure.An important contribution of this paper is to demonstrate that the loan-to-value ratio, debtcoverage ratio and guarantee differ in a statistically significant way across these outcomes.This paper is also the first to examine the guarantee variable, and despite issues related toendogeneity and difficulty in realization on the guarantee, it was found to be consistentlystatistically significant, both in prediction of delinquency and in distinguishing among thereinstatement and foreclosure outcomes of delinquency.Planned extensions of this paper include the formalization of the two-stage conceptualmodel of the default process, as well as robustness checks for the results in light of restructuringmodifications, post-renewal defaults and prepayments.13
ReferencesAmbrose, Brent W., Buttimer, Richard J., Embedded Options in the Mortgage Contract, Journalof Real Estate Finance and Economics, 21(2), 2000, pages 95-111.Ambrose, Brent, Capone, Charles, Modeling the Conditional Probability of Foreclosure in theContext of Single-Family Mortgage Default Resolutions, Real Estate Economics, 1998,26(3), pages 391-429.Ambrose, Brent, Capone, Charles, Cost-Benefit Analysis of Single Family ForeclosureAlternatives, Journal of Real Estate Finance and Economics, 13, 1996, pages 105-120.Ambrose, Brent; Sanders, Anthony, Commercial Mortgage-backed Securities: Prepayment andDefault, working paper, 2001.Archer, Wayne et al., Determinants of Multifamily Mortgage Default. Real Estate Economics,30(3), 2002, pages 445-473.Childs, Paul D.; Ott, Steven H.; Riddiough, Timothy J., The Pricing of Multi-Class CommercialMortgage Backed Securities, Journal of Financial and Quantitative Analysis; 31(4),December 1996, pages 581-603.Chun, Jun; Deng, Yongheng, Commercial Mortgage Workout Strategy and Conditional DefaultProbability: Evidence from Special Serviced CMBS Loans, working paper, 2002.Ciochetti, Brian A., Loss Characteristics of Commercial Mortgage Foreclosures, Real EstateFinance, Spring 1997, pages 53-69.Ciochetti, Brian A. et al., The Termination of Commercial Mortgage Contracts throughprepayment and Default: A Proportional Hazard Approach with Competing Risks, RealEstate Economics, 30(4), 2002, pages 595-633.Foster, C., Van Order, R.; FHA Terminations,: A Prelude to Rational Mortgage Pricing, Journalof the American Real Estate and Urban Economics Association, 1985, 13(3), pages 292-316.14
Page 1 and 2: Commercial Mortgage Delinquency, Fo
Page 3 and 4: Perhaps the most compelling reason
Page 5 and 6: contemporaneous loan-to-value ratio
Page 7 and 8: national lenders, of which the data
Page 9 and 10: Whenever a property appraisal is pe
Page 11 and 12: loans and the highest value for for
Page 13: atio, debt coverage ratio and guara
Page 17 and 18: Titman, Sheridan D.; Torous, Walter
Page 19 and 20: Table 3Independent Variable: Ever D
Page 21 and 22: Table 4b - Loan OutcomeNever Delinq
Page 23 and 24: 1 IntroductionCommercial mortgages
Page 25 and 26: Based on the results from the first
Page 27 and 28: An early paper about the empirical
Page 29 and 30: 4 DataIn order to test the multiple
Page 31 and 32: To derive the excess returns, the r
Page 33 and 34: examining bond returns. Second, sin
Page 35 and 36: significant for 3 series. The growt
Page 37 and 38: ReferencesBlack, Fischer; Jenson, M
Page 39 and 40: Ibbotson, R. G.; Siegel, L. B.; Rea
Page 41 and 42: Appendix 1 - Unsmoothing Real Estat
Page 43 and 44: Figure 1Commercial Mortgage Returns
Page 45 and 46: Table 1 - List of FactorsVariable D
Page 47 and 48: Table 3 - CorrelationsReturn Series
Page 49 and 50: Table 5 - Test for Equality of Coef
Page 51 and 52: Table 6b - Estimation results for S
Page 53 and 54: Table 7 - Estimation results for Bo

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