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Comparing Securitized and Balance Sheet Loans: Size Matters

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  • Andra Ghent

    (Real Estate and Urban Land Economics Department, University of Wisconsin–Madison, Madison, Wisconsin 53706)

  • Rossen Valkanov

    (Finance Department, Rady School of Management, University of California, San Diego, La Jolla, California 92093)

Abstract

We assemble a unique data set of commercial mortgages with information on loan characteristics at origination and subsequent performance. The most significant difference between securitized and balance sheet loans is the size of the loan. The loans in the highest loan size decile have a 43% chance of securitization, whereas the ones in the lowest decile have only a 1% chance. This result is consistent with diversification being a key motivation for securitization. We also find that loans that require substantial monitoring are less likely to be securitized. Finally, securitized loans get resolved less quickly after defaulting. This paper was accepted by Neng Wang, finance .

Suggested Citation

  • Andra Ghent & Rossen Valkanov, 2016. "Comparing Securitized and Balance Sheet Loans: Size Matters," Management Science, INFORMS, vol. 62(10), pages 2784-2803, October.
    • Handle: RePEc:inm:ormnsc:v:62:y:2016:i:10:p:2784-2803
    DOI: 10.1287/mnsc.2015.2260
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    3. Hibbeln, Martin & Osterkamp, Werner, 2024. "The Impact of Risk Retention on Moral Hazard in the Securitization Market," Journal of Banking & Finance, Elsevier, vol. 163(C).
    4. David Glancy & John R. Krainer & Robert J. Kurtzman & Joseph B. Nichols, 2022. "Intermediary Segmentation in the Commercial Real Estate Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(7), pages 2029-2080, October.
    5. Xudong An & Lawrence R. Cordell & Nicholas Smith, 2023. "CMBS Market Evolution and Emerging Risks," Working Papers 23-27, Federal Reserve Bank of Philadelphia.
    6. Reher, Michael, 2021. "Finance and the supply of housing quality," Journal of Financial Economics, Elsevier, vol. 142(1), pages 357-376.
    7. Martin Hibbeln & Werner Osterkamp, 2024. "Simple is simply not enough—features versus labels of complex financial securities," Review of Derivatives Research, Springer, vol. 27(2), pages 113-150, July.
    8. Lamont K Black & John R Krainer & Joseph B Nichols & Stijn Van Nieuwerburgh, 2020. "Safe Collateral, Arm’s-Length Credit: Evidence from the Commercial Real Estate Market," The Review of Financial Studies, Society for Financial Studies, vol. 33(11), pages 5173-5211.

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