اطلاعات نامتقارن، کژ گزینی و قیمت گذاری CMBS

We demonstrate that asymmetric information between sellers (loan originators) and purchasers (investors and securities issuers) of commercial mortgages gives rise to a standard lemons problem, whereby portfolio lenders use private information to liquidate lower quality loans in commercial mortgage-backed securities (CMBS) markets. Conduit lenders, who originate loans for direct sale into securitization markets, mitigate problems of asymmetric information and adverse selection in loan sales. Our theory provides an explanation for the pricing puzzle observed in CMBS markets, whereby conduit CMBS loans are priced higher than portfolio loans, despite widespread belief that conduit loans are originated at lower quality. Consistent with theoretical predictions of a lemons discount, our empirical analysis of 141 CMBS deals and 16,760 CMBS loans shows that, after controlling for observable determinants of loan pricing, conduit loans enjoyed a 34 basis points pricing advantage over portfolio loans in the CMBS market.

In the wake of ongoing disruption to the real estate capital markets, analysts and policy makers alike have sought to better understand the collapse of mortgage derivatives. Much attention has been paid to the abuses to securitization, notably including those associated with security design, excess leverage, opaqueness, and lax ratings. Analysts similarly have argued that conduit lending, a process whereby mortgage lenders originated loans expressly for pass-through to securitization markets, was conspicuous among deconstructing forces. Specifically, critics claim that pass-through of loans to securitization markets damped originator incentives to appropriately screen loans. Those concerns have been cited among flaws of the originate-to-distribute model (see, for example, Bernanke, 2008, Mishkin, 2008, European Central Bank, 2008, Ashcraft and Schuermann, 2008, Keys et al., 2010 and Purnanandam, 2009). While conduit lenders could have contributed to moral hazard in primary market loan origination, those same entities likely mitigated problems of asymmetric information and adverse selection in secondary market loan sales. Unlike portfolio lenders, conduit lenders have neither the opportunity nor the incentive to develop private information on loan quality. Accordingly, conduits potentially alleviate a lemons problem in selection of loans for sale in securitization markets by portfolio lenders. In this manner, conduit lending enhances allocative efficiency in the secondary mortgage market. In this paper, we investigate this hypothesis, via modeling and empirical evaluation of the pricing of conduit- and portfolio-backed commercial mortgage-backed securities (CMBS) and loans. To demonstrate the lemons problem and to derive testable predictions about how the lemons effect varies with such parameters as the dispersion of loan quality and the cost of holding loans in portfolio, we first present a simple information economics model of loan sales in securitization markets. In our model, portfolio lenders face a sell or hold decision and possess private information about loan quality. Portfolio lender private information derives from their due diligence in loan underwriting and their experience in holding and servicing mortgages. This private information includes soft information as described in Stein (2002). In selecting loans to sell into securitization markets, portfolio lenders utilize their private information and adopt a strategy of selling lower quality loans. Our theoretical results show that, in equilibrium, only lower quality portfolio loans (lemons) are sold into the secondary markets and that their sales price incorporates a lemons discount. In contrast, conduit lenders originate loans exclusively for direct sale into the secondary market. Conduits lack the incentive to develop soft information about loan quality as their profit derives mainly from loan origination fees instead of from long-term returns associated with portfolio holding of loans.1 In our model, information is symmetric between conduit loan sellers and buyers, all conduit loans are sold into secondary markets, and loan prices do not reflect a lemons discount. Theoretical results also suggest that the magnitude of the lemons discount associated with portfolio loan sales varies positively with the dispersion of loan quality in the mortgage pool and inversely with the seller's cost of holding loans in portfolio. The total surplus associated with the trade is higher in the case of conduit loan sales. Our model helps to explain a puzzle in the pricing of CMBS deals. As seen in Table 1, over the course of the 1994–2000 sample period, CMBS investors paid higher prices for CMBS backed by conduit loans, as evidenced in the substantially lower spreads over Treasuries at issuance among conduit CMBS deals relative to portfolio CMBS deals. According to our theory, the discount on portfolio loans is due in part to the higher residual risk of portfolio loans sold into CMBS markets.The theory is also consistent with growth over time in the prevalence of conduit loans in CMBS deals. In the aftermath of the advent of commercial mortgage securitization in the early 1990s, loans backing CMBS were largely contributed by thrifts and life insurance companies, which originally intended to retain those loans in portfolio. However, in the wake of CMBS market growth, conduit lending emerged whereby originators funded mortgages with the express intent of direct sale into securitization markets. Conduit lending constituted less than 5% of all CMBS deals in 1992. However, the share of conduit loans grew to 75% by 1998 and reached almost 100% by 2001. The decline in portfolio loan sales is suggestive of efficiency problems associated with securitization of those mortgages. In our empirical analysis, we test theoretical predictions. To do so, we first study the pricing of 141 CMBS deals brought to market during the 1994–2000 period. Estimates of a reduced-form pricing model conform to theory. Results indicate that portfolio-backed CMBS deals were priced 33 basis points (bps) lower than conduit deals, after controlling for observable CMBS pool characteristics and other established determinants of CMBS pricing, including the term structure of interest rates, interest rate volatility, the Sharpe ratio, corporate bond credit spreads, and CMBS market capitalization. We further assess the robustness of the CMBS deal-level results via a loan-level analysis of commercial mortgage loan pricing. Here our sample contains 13,655 conduit loans and 3,105 portfolio loans sold into securitization markets during the 1994–2000 period. Our findings indicate a pricing differential of 34 bps after controlling for observable credit quality and other established loan pricing determinants, including the loan-to-value (LTV) ratio, amortization term, collateral property type, property location, prepayment constraints, CMBS pool characteristics, CMBS market cap, and the like. Moreover, we find that the lemons discount is lower for multifamily loans, which are characterized by lower levels of uncertainty and lender private information than retail, office, and industrial loans. This is consistent with theoretical predictions that buyers are more reluctant to trade and that the lemons discount is larger when information asymmetry is more severe. Overall, results of both the deal-level and the loan-level analyses are supportive of our theoretical predictions. The intuition for our paper derives from a simple application of the Akerlof (1970) “market for lemons” theory to financial markets. It is noteworthy that substantial theoretical research has sought to address information asymmetry and adverse selection problems in financial markets (see, e.g., Leland and Pyle, 1977, Stiglitz and Weiss, 1981, Myers and Majluf, 1984, John and Williams, 1985, Diamond, 1993, Winton, 1995, DeMarzo and Duffie, 1999, DeMarzo, 2005 and Gan and Riddiough, 2008). However, empirical evidence of lemons effects is limited. This paper, by way of application to the market for CMBS, presents empirical evidence consistent with the market for lemons theory. Our empirical findings also are consistent with a recent study by Downing, Jaffee, and Wallace (2009), who show that residential mortgage-backed securities (RMBS) sold by Freddie Mac (Federal Home Loan Mortgage Corporation) to bankruptcy remote special purpose vehicles (SPVs) were characterized by lower credit quality than those retained by Freddie Mac in portfolio. The authors argue that their findings are consistent with the notion that Freddie Mac used private information to deliver lemons to securitization markets. Empirical results of our paper also largely confirm findings evidenced in the broader empirical literature on mortgage and bond pricing (see, e.g., Rothberg et al., 1989, Fama and French, 1989, Blume et al., 1991, Bradley et al., 1995, Collin-Dufresne et al., 2001, Titman et al., 2004, Longstaff et al., 2005 and Titman and Tsyplakov, 2010). For example, our findings suggest that CMBS market cap, slope of the Treasury yield curve, amortization term, prepayment constraints, and mortgage pool diversification all negatively impact commercial mortgage spreads, whereas corporate bond spreads, CMBS loan maturity, and share of hotel loans in the CMBS pool are all positively related to spreads. In addition, we find that the lagged risk-adjusted return in commercial property markets has a strong negative impact on CMBS spreads. We proceed as follows. In the next section, we briefly describe the rise of conduit lending and provide background of our study. In Section 3, we present our information economics model, and in Section 4 we discuss our empirical modeling and results. In Section 5, we provide concluding remarks

While information asymmetry is a common feature of financial markets, empirical evidence of its pricing effect is limited. This paper presents an information economics model and related empirical evidence of asymmetric information and adverse selection effects in the market for commercial mortgage-backed securities. In the CMBS market, informed portfolio lenders possess private information on loan quality and seek to liquefy lower quality loans. Theoretical results show that sales of portfolio loans in securitization markets incorporate a lemons discount. In contrast, conduit lenders, who originate loans for direct sale into securitization markets and possess no private information on loan quality, serve to mitigate problems of asymmetric information and loan adverse selection. Our empirical estimates conform to theory. Results of reduced form pricing models at both the deal and loan level indicate that portfolio loans sold into securitization markets were priced 33 bps lower than conduit deals, after controlling for observable credit quality and other well-established determinants of CMBS pricing. Our findings have important implications for the future of the mortgage derivatives market. Clearly, structural failings associated with the originate-to-distribute model require further business and policy scrutiny. However, results from this paper suggest that conduit lending has alleviated information problems associated with commercial mortgage securitization and in so doing enhanced efficiency in the CMBS marketplace. Those benefits should be retained in ongoing efforts to restructure and revitalize the commercial mortgage-backed securities markets.