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Why Are Commercial Mortgage- Backed Securities More Attractive Today?- by Rodrigo Melgoza
Securitization is the process of dividing or segmenting the cash flow associated with a group of discrete assets into a new cash flow streams or classes of particular interest to certain investors.
Collateralized residential mortgages became one of Wall Street's shining stars of the 1980s and continued throughout the 90s. It was in the mid-90s that commercial mortagages began a new wave.
Historically, residential securities have been incredibly successful while commercial securites lacked certain attributes such as guaranteed repayment of principal and interest. There is no equivalent for commercial mortages.
During the 1980s, the United States experienced a severe rea lestae depression, the aftereffects of a wild building spree spurred by tax breaks and high liquidity.
It was in the 1990s that the world of Real Estae changed, and so did commercial banking. The savings and loan crisis, and overbuilt market and new government regulations brought a drastic change in the lending policy.
In the beginning of 2000, the cmbs sector became an indicator of the overall health of the commercial real estate world. If fact, some conventional lenders beagn to underwrite loans with an eye towards securitization.
Today, the evolution of commercail real estae finance on Wall Street and beyond has opened new doors for loan structures that enable borrowers to optimize objectives and create portfolio stability. In many ways, the direction of the commercial mortgage market is traking the residential fanacial market-on fast forward!
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Article submitted by Rodrigo Melgoza
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