CMBS

Question 1

What are commercial mortgage backed securities?

Answer 1

securities backed by a pool of commercial mortgage loans on income producing property.

Question 2

Are most of them recourse loans?

Answer 2

No, most of them are non-recourse loans and therefore it is necessary to study the underlying cash flows.

Question 3

What are the two main indicators of performance?

Answer 3

1. debt-to-service coverage ratio

2. the loan to value ratio

Question 4

What kind of call protection do CMBS have?

Answer 4

they come at the structural level and at the loan level.

Question 5

What is an example of call protection at the strucural level?

Answer 5

if you have different tranches and you hold bond a then it would take a lot of prepayment to get back

Question 6

What is the protection at the loan level?

Answer 6

1. prepayment lockouts
2. prepayment penalty points
3. Yield maintenance charges
4. defeasance

Question 7

What is a ballon payment?

Answer 7

That said, the payment structure for a balloon loan is very different from a traditional loan. Here’s why: At the end of the five to seven-year term, the borrower has paid off only a fraction of the principal balance, and the rest is due all at once. At that point, the borrower may sell the home to cover the balloon payment or take out a new loan to cover the payment, effectively refinancing the mortgage. Alternatively, he may make the payment in cash.