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The Effect of Risk Retention Rules on CMBS Loan Underwriting: Evidence from Property Types

Author

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  • Vivek Sah
  • Amrik Singh

Abstract

This study investigates the effect of risk retention rules on commercial mortgage loan underwriting. Using a difference-in-difference framework and a large sample of 63,153 non-agency and agency loans that were securitized between 2010 and 2019, this study provides further evidence of the magnitude and extent to which risk retention rules led to changes in loan quality and commercial mortgage loan underwriting before and after their implementation. Using ratios such as loan-to-value ratio, debt service coverage ratio, debt yield ratio, and credit spread to measure changes in loan quality and underwriting metrics, we find a significant impact of risk retention rules on commercial mortgage underwriting. Controlling for various property, loan, and market characteristics and fixed effects, the study finds that risk retention is associated with significantly lower interest rates, credit spreads, loan-to-value ratios and higher debt service coverage ratios and debt yield ratios. Further, the evidence indicates significant variation across property types following rule implementation. Finally, the results reveal significant differences in the risk retention shape adopted by sponsors and its relationship with underwriting criteria.

Suggested Citation

  • Vivek Sah & Amrik Singh, 2025. "The Effect of Risk Retention Rules on CMBS Loan Underwriting: Evidence from Property Types," ERES eres2025_301, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2025_301
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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