CMBS and Conflicts of Interest: Evidence from a Natural Experiment on Servicer Ownership
37 Pages Posted: 12 May 2015
Date Written: May 12, 2015
Self-dealing is potentially important but difficult to measure. I study special servicers in commercial mortgage-backed securities (CMBS), who sell distressed assets on behalf of bondholders. Around 2010, ownership changes for four servicers raised tunneling concerns that they may direct benefits to new owners' affiliates (buyers and service providers). Loss rates for loans liquidated after the ownership changes are 8 percentage points greater than before ($2.3 billion in losses), relative to other (placebo) servicers. Together with a case study that directly measures self-dealing relationships, the findings point to the importance of tunneling through fees to service providers (steering) instead of purchases.
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