Delinquencies, Default and Borrowers' Strategic Behavior toward the Modification of Commercial Mortgages

This article constructs a model of mortgage delinquency which tests the extent to which borrowers anticipate a loan modification resulting from such a delinquency. Using a sample of modified loans from commercial mortgage‐backed securities (CMBS), we estimate the present value of modified cash flows...

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Bibliographic Details
Published in:Real estate economics 2021-10, Vol.49 (3), p.936-967
Main Authors: Buschbom, Stephen L., Kau, James B., Keenan, Donald C., Lyubimov, Constantine
Format: Article
Language:English
Subjects:
Delinquency
Loan workouts
Loans
Mortgages
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Summary:This article constructs a model of mortgage delinquency which tests the extent to which borrowers anticipate a loan modification resulting from such a delinquency. Using a sample of modified loans from commercial mortgage‐backed securities (CMBS), we estimate the present value of modified cash flows and project modification benefits each month for all CMBS loans which serve to proxy for a borrower's anticipation of a beneficial modification. Our results confirm a borrower's anticipation of a modification increases the delinquency hazard, and supports the theory that borrower delinquency is strategically endogenous.
ISSN:1080-8620
1540-6229
DOI:10.1111/1540-6229.12237