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Loss Recoveries, Realized Excess Returns, and Credit Rationing in the Commercial Mortgage Market

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  • Brian Ciochetti
  • James Shilling

Abstract

In this paper we exploit loan level data combining foreclosure histories with information about the revenues and expenses associated with the ongoing management and eventual sale of financially distressed loans to estimate the magnitude of realized excess returns on commercial mortgages. Our findings are striking. We find that average realized excess returns on commercial mortgages are the lowest at the best times á la Stiglitz and Weiss (Am. Econ. Rev., 71:393–409, 1981). We also find that excess realized returns on commercial mortgages are low when lenders are swamped with funds (which we measure by the volume of commercial mortgage commitments) and when promised spreads are low. Copyright Springer Science+Business Media, LLC 2007

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  • Brian Ciochetti & James Shilling, 2007. "Loss Recoveries, Realized Excess Returns, and Credit Rationing in the Commercial Mortgage Market," The Journal of Real Estate Finance and Economics, Springer, vol. 34(4), pages 425-445, May.
    • Handle: RePEc:kap:jrefec:v:34:y:2007:i:4:p:425-445
    DOI: 10.1007/s11146-007-9021-2
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    1. John H. Cochrane & Monika Piazzesi, 2005. "Bond Risk Premia," American Economic Review, American Economic Association, vol. 95(1), pages 138-160, March.
    2. Kerry D. Vandell, 1992. "Predicting Commercial Mortgage Foreclosure Experience," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 20(1), pages 55-88, March.
    3. Kerry D. Vandell & Walter Barnes & David Hartzell & Dennis Kraft & William Wendt, 1993. "Commercial Mortgage Defaults: Proportional Hazards Estimation Using Individual Loan Histories," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 21(4), pages 451-480, December.
    4. Warner, Jerold B, 1977. "Bankruptcy Costs: Some Evidence," Journal of Finance, American Finance Association, vol. 32(2), pages 337-347, May.
    5. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    6. Terrence M. Clauretie, 1987. "The Impact of Interstate Foreclosure Cost Differences and the Value of Mortgages on Default Rates," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 152-167, September.
    7. Episcopos, Athanasios & Pericli, Andreas & Hu, Jianxun, 1998. "Commercial Mortgage Default: A Comparison of Logit with Radial Basis Function Networks," The Journal of Real Estate Finance and Economics, Springer, vol. 17(2), pages 163-178, September.
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    Cited by:

    1. Hoon Cho & Brian Ciochetti & James Shilling, 2013. "Are Commercial Mortgage Defaults Affected by Tax Considerations?," The Journal of Real Estate Finance and Economics, Springer, vol. 46(1), pages 1-23, January.

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    More about this item

    Keywords

    Asset pricing; Information and market efficiency; Mortgages; G12; G14; G21;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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