CMBS and Conflicts of Interest: Evidence from a Natural Experiment on Servicer Ownership

37 Pages Posted: 12 May 2015

See all articles by Maisy Wong

Maisy Wong

The Wharton School, University of Pennsylvania

Date Written: May 12, 2015

Abstract

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.

Suggested Citation

Wong, Maisy, CMBS and Conflicts of Interest: Evidence from a Natural Experiment on Servicer Ownership (May 12, 2015). The Wharton School Research Paper No. 82, Jacobs Levy Equity Management Center for Quantitative Financial Research Paper, Available at SSRN: https://ssrn.com/abstract=2605538 or http://dx.doi.org/10.2139/ssrn.2605538

Maisy Wong (Contact Author)

The Wharton School, University of Pennsylvania ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States
215-746-3470 (Phone)

HOME PAGE: http://maisy.wharton.upenn.edu/

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