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A Dynamic Double‐Trigger Model of Multifamily Mortgage Default

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  • Lawrence Goldberg
  • Charles A. Capone, Jr.

Abstract

This study advances the commercial mortgage literature by providing theory and methods for incorporating both equity and cash‐flow considerations in default models. We use local market conditions to compute a (joint) probability that default is in‐the‐money, based on both equity and cash‐flow considerations. Statistical analysis is performed using data on multifamily mortgages originated in the 1980s and early 1990s. Simulations based on statistical modeling show advantages of the probabilistic double‐trigger approach over other measures of equity and cash flow.

Suggested Citation

  • Lawrence Goldberg & Charles A. Capone, Jr., 2002. "A Dynamic Double‐Trigger Model of Multifamily Mortgage Default," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 30(1), pages 85-113.
    • Handle: RePEc:bla:reesec:v:30:y:2002:i:1:p:85-113
    DOI: 10.1111/1540-6229.00031
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    Cited by:

    1. Grovenstein, Robert A. & Harding, John P. & Sirmans, C.F. & Thebpanya, Sansanee & Turnbull, Geoffrey K., 2005. "Commercial mortgage underwriting: How well do lenders manage the risks?," Journal of Housing Economics, Elsevier, vol. 14(4), pages 355-383, December.
    2. Kelly, Robert & O'Toole, Conor, 2016. "Lending Conditions and Loan Default: What Can We Learn From UK Buy-to-Let Loans?," Research Technical Papers 04/RT/16, Central Bank of Ireland.
    3. Anthony Pennington‐Cross & Brent C Smith, 2020. "Early Termination of Small Loans in the Multifamily Mortgage Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 48(4), pages 1198-1233, December.
    4. Xudong An & Yongheng Deng & Joseph Nichols & Anthony Sanders, 2013. "Local Traits and Securitized Commercial Mortgage Default," The Journal of Real Estate Finance and Economics, Springer, vol. 47(4), pages 787-813, November.
    5. Youngha Cho & Soosung Hwang & Steve Satchell, 2012. "The Optimal Mortgage Loan Portfolio in UK Regional Residential Real Estate," The Journal of Real Estate Finance and Economics, Springer, vol. 45(3), pages 645-677, October.
    6. Goodman, Jack, 2004. "Determinants of operating costs of multifamily rental housing," Journal of Housing Economics, Elsevier, vol. 13(3), pages 226-244, September.
    7. Kelly, Robert & O’Toole, Conor, 2018. "Mortgage default, lending conditions and macroprudential policy: Loan-level evidence from UK buy-to-lets," Journal of Financial Stability, Elsevier, vol. 36(C), pages 322-335.
    8. Deng, Yongheng & Quigley, John M. & Sanders, Anthony B., 2006. "Commercial Mortgage-backed Securities (CMBS) Terminations, Regional and Property-Type Risk," Working Paper Series 2006-24, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
    9. An, Xudong & Deng, Yongheng & Gabriel, Stuart A., 2011. "Asymmetric information, adverse selection, and the pricing of CMBS," Journal of Financial Economics, Elsevier, vol. 100(2), pages 304-325, May.

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