View Full Version : 8I: Commercial mortgages
10-18-2002, 09:42 AM
I know it is probably just a detail, but it still bugs me. Has anyone noticed that in the Atkinson/Dallas textbook when they list different invetsments, in the commercial mortgage section they say that there is a small pre-payment penalty, but in another study note it is said that pre-payment penalty are huge so there is no chance of pre-payment.
Any specialist in commercial mortgages?
10-18-2002, 11:28 AM
I'm not a specialist, but back when I did cashflow testing, we assumed no prepayments on our commercial mortgages. Almost all were 5 year mortgages with huge balloon payments.
When I read A&D on that one, I thought that they were wrong.
10-18-2002, 03:36 PM
In my notes, I wrote default is highly correlated with geographic regions. And default charge reduces expected earnings.
I guess one author was writing about a good geographic area for not defaulting and didn't need the significant pp charge b/c default didn't erode away their profits. Whereas the other author need pp protection b/c of where he issues business b/c his defaults charges are eroding their profits and there's no room to get selected against.
Commercial mortgage defaults are definately geographically clustered. After the oil bust in the early 90's we had a boat load of defaults in Texas. We subsequently owned a boat load of comercial RE in TX.
It's been a while since I've modeled comm morts but I seem to remember quite a few of them having make-whole provisions.
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