Contemporaneous Loan Stress and Termination Risk in the CMBS Pool : How Ruthless is Default?

This study analyzes the impact of contemporaneous loan stress on the termination of loans in the commercial mortgage-backed securities pool using a novel measure, based on changes in net operating incomes and property values at the MSA-property type-year level. Employing a semi-parametric competing risks model for a variety of specifications, we find that the probability of default is extremely low at very high levels of stress, even though the coefficient estimates of greatest interest are very statistically significant. These results suggest substantial lender forbearance and a possible reluctance to foreclose, and are consistent with previous literature which models the incidence of default as quot;gradualquot; rather than quot;ruthlessquot; once it is quot;in the moneyquot