THE INFLUENCE OF ORIGINATOR, SERVICER AND UNDERWRITER CHARACTERISTICS ON COMMERCIAL MORTGAGE-BACKED SECURITIES PERFORMANCE

Abstract

The primary interest of this research is to examine how the reputation of originator, servicer and underwriter relates to the quality of the Commercial Mortgage Backed Security (CMBS) they issue and manage. This is achieved by a comprehensive study of 139 CMBS deals over the period from January 2000 to December 2007, using linear regressions, t-tests and pooled linear regressions.

The results show that originator, servicer and underwriter characteristics have significant, yet contradictory impacts on the performance of CMBS pools. These findings, especially the adverse impact of the underwriter’s characteristics on the performance, reflect the fact that during the buoyant period of CMBS development, large and reputable financial institutions took advantage of their powerful market presence to generate higher bottom line. The second part of the study examines the influence of originator concentration on the delinquency rate of each securitized pool. The findings support the notion that the securitization of loans issued by many originators erodes the originator’s incentives toward carefully screening of loan quality. Another essential finding is about the influence of originator type on delinquency rate which suggests that poor performance resulted from variances among different types of originators in relation to risk exposure and standard of regulation. Controlled at the deal level, the findings give evidence that the influence of servicer and underwriter does not help to improve the performance of these securitized products.