What Are Commercial Mortgage Backed Securities? β Pros & Cons
What Are Commercial Mortgage Backed Securities? β Pros & Cons
Abstract
What Are CMBS? Lenders create CMBS. They take a group of commercial real estate loans, put them into a package, and sell them to investors as a series of bonds. The underlying CMBS securities can include any number of commercial mortgages of varying values, property types , and values - such as commercial real estate and more than four-unit multi-family properties that generate income. CMBS carries less prepayment risk than residential mortgage-backed securities because the terms of commercial mortgages are usually fixed. How Does Commercial Mortgage Backed Securities Work? Just like collateralized debt obligations and collateralized mortgage obligations, CMBS are also sold in the form of bonds. Multiple mortgage loans that form the CMBS, act as collateral if the borrowers default on the mortgage payments. The underlying loans collateralized by CMBS include mortgages for real estate such as complexes, factories, office parks, hotels, office buildings, apartment buildings, and shopping centers. Each of these participants fulfills specific responsibilities to ensure the proper functioning of CMBS. What Are The Pros Of Commercial Mortgage Backed Securities? Term Loans Are Fixed: CMBS-backed loans are often fixed.
