CMBS Subordination, Ratings Inflation, And The Crisis Of 2007-2009

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Executive Summary

This paper analyzes the performance of the Commercial Mortgage-Backed Security (CMBS) market before and during the recent financial crisis. Using a comprehensive sample of CMBS deals from 1996 to 2008, the authors show that (unlike the residential mortgage market) the loans underlying CMBS did not significantly change their characteristics during this period, commercial lenders did not change the way they priced a given loan, defaults remained in line with their levels during the entire 1970s and 1980s and, overall, the CMBS and CMBX markets performed as normal during the financial crisis (at least by the standards of other recent market downturns).

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