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Banks, non-banks, and the incorporation of local information in CMBS loan pricing

Author

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  • Eichholtz, Piet
  • Ongena, Steven
  • Simeth, Nagihan
  • Yönder, Erkan

Abstract

Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers, and their properties is reflected in the pricing of US mortgages that were included in US commercial mortgage-backed security (CMBS) pools during the 2000 to 2017 period. The difference in loan spreads when the bank-borrower distance increases from zero to the median of about 700 miles is 10 basis points, and this effect is more pronounced if the loan is collateralized by a riskier property. On the contrary, geographical distance does not seem to have any effect on the loan spread of mortgages granted by non-bank lenders. The difference in loan pricing across originator types (even after controlling for key mortgage and property characteristics) suggests that banks and non-bank lenders have different incentives, lending technologies, and/or different types of borrowers. Our results contribute to the emerging literature on non-bank lender behavior.

Suggested Citation

  • Eichholtz, Piet & Ongena, Steven & Simeth, Nagihan & Yönder, Erkan, 2023. "Banks, non-banks, and the incorporation of local information in CMBS loan pricing," Journal of Banking & Finance, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:jbfina:v:154:y:2023:i:c:s0378426623001243
    DOI: 10.1016/j.jbankfin.2023.106918
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    References listed on IDEAS

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    More about this item

    Keywords

    CMBS; Non-bank lending; Geographical distance; Asymmetric information; Loan spread;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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