Commercial Mortgage Delinquency, Foreclosure and Reinstatement

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finding is that commercial mortgage returns and corporate bond returns are identically sensitiveto these factors.Using a specification derived from the real estate literature, I find that commercialmortgages are also sensitive to the factor that measures growth in personal consumption. When asix-factor specification is tested, using the five FF factors with the growth in personalconsumption factor, I find that commercial mortgages are still sensitive to the consumptionfactor. Commercial mortgages and corporate bonds are not identically sensitive to theconsumption factor.The implication is that while commercial mortgages are highly correlated to corporatebonds and share the same risk factors, there is more to commercial mortgages. The sensitivity tothe growth in personal consumption is a characteristic shared with appraised real estate, whichunderlies commercial mortgages as security.14
ReferencesBlack, Fischer; Jenson, Michael C.; Scholes, Myron, The Capital Asset Pricing Model: SomeEmpirical Tests, in Studies in the Theory of Capital Markets, New York, Praeger, 1972.Breeden, Douglas T., An intertemporal asset pricing model with stochastic consumption andinvestment opportunities, Journal of Financial Economics, 1979, 7, pages 265-296.Breeden, Douglas T.; Gibbons, Michael R.; Litzenberger, Robert H., Empirical Tests of theConsumption-Oriented CAPM, Journal of Finance, XLIV (2), June 1989, pages 231-262.Campbell, John Y., Consumption and the Stock Market, NBER Working Paper Series 5610,1996.Campbell, John Y., Understanding Risk and Return, Journal of Political Economy, Journal ofPolitical Economy, 1996, 104(2), pages 298-345.Campbell, John Y; Cochrane, John H., Explaining the Poor Performance of Consumption-basedAsset Pricing Models, Journal of Finance, 55(6), December 2000, pages 2863-2878.Campbell, John Y.; Lo, Andrew W.; MacKinlay, A. Craig, The Econometrics of FinancialMarkets, Princeton University Press, New Jersey, 1997.Chan, K.C.; Hendershott, Patric H. ; Sanders, Anthony B., Risk and Return on Real Estate:Evidence from Equity REITs, AREUEA Journal, 18(4), 1990, pages 431-452.Chen, Nai-fu; Roll, Richard; Ross, Stephen A., Economic forces and the stock market, Journal ofBusiness, 1986, 59(3), pp. 383-403.Ciochetti, Brian A., Loss Characteristics of Commercial Mortgage Foreclosures, Journal of RealEstate Finance, 1997, 14, pages 53-69.Ciochetti, Brian A.; Vandell, Kerry D., The Performance of Commercial Mortgages, Real EstateEconomics; 27(1), Spring 1999, pages 27-61.Clauretie, Terence M.; Sirmans, G. Stacy, Real Estate Finance Theory and Practice, ThirdEdition, prentice-Hall, New Jersey, 1999.15
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 and 14: atio, debt coverage ratio and guara
Page 15 and 16: ReferencesAmbrose, Brent W., Buttim
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: significant for 3 series. The growt
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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