Bank and Nonbank Lenders and the Commercial Mortgage Market

Brent William Ambrose, John D. Benjamin, Peter Chiniloy

Research output: Contribution to journalArticle

7 Citations (Scopus)

Abstract

This paper develops an equilibrium model of the commercial mortgage market that includes the sequence from commitment to origination and allows testing for differences by type of lender. From borrowers, loan demand is based on the income yield, capital gains, and expectations about return distributions. Lenders use prices such as mortgage rates and their distributions, and quantities in underwriting standards. There are separate equilibria in the markets for loan commitments and originations. Bank and nonbank lenders are not restricted to the same lending technology, nor to the weights placed on mortgage rates as opposed to underwriting standards. Empirical results for the United States commercial mortgage market indicate that banks use interest rates in allocating credit while nonbanks rely on underwriting standards, notably the loan-to-value ratio. A consequence is that nonbanks have a clientele incentive towards making low cap rate loans compensated by low loan-to-value ratios.

Original languageEnglish (US)
Pages (from-to)81-94
Number of pages14
JournalJournal of Real Estate Finance and Economics
Volume26
Issue number1
DOIs
StatePublished - Jan 1 2003

Fingerprint

loan
bank
market
interest rate
commitment
incentive
income
equilibrium model
lending
Values
credit
rate
Mortgage market
Loans
Underwriting
demand
distribution
Mortgage rates
price
Lending

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Economics and Econometrics
  • Urban Studies

Cite this

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Bank and Nonbank Lenders and the Commercial Mortgage Market. / Ambrose, Brent William; Benjamin, John D.; Chiniloy, Peter.

In: Journal of Real Estate Finance and Economics, Vol. 26, No. 1, 01.01.2003, p. 81-94.

Research output: Contribution to journalArticle

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