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Availability of Credit and Loan Default: A Look at the Commercial Mortgage Supply Cycle

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  • Luis Mejia

Abstract

This study uses a structural equation approach to assess the presence of a credit supply effect in the commercial mortgage market and the lenders’ ability to incorporate expectations about this effect into their lending policies. A credit supply effect is defined as the effect of mortgage supply on the level of loan defaults. The empirical analysis shows two important results. First, changes in loan defaults appear to be preceded by changes in commercial mortgage supply with a lag of approximately four to five years. Second, lenders tend to behave myopically, failing to incorporate expectations about the credit supply effect into their lending policies. Additionally, a simulation suggests that adequate timing of the mortgage supply cycle is crucial in limiting the incidence of mortgage default.

Suggested Citation

  • Luis Mejia, 1999. "Availability of Credit and Loan Default: A Look at the Commercial Mortgage Supply Cycle," Journal of Real Estate Research, Taylor & Francis Journals, vol. 18(1), pages 175-196, January.
    • Handle: RePEc:taf:rjerxx:v:18:y:1999:i:1:p:175-196
    DOI: 10.1080/10835547.1999.12090989
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