The Evolution of Securitization in Multifamily Mortgage markets and Its Effect on lending Rates

Abstract

Loan purchase and securitization by Freddie Mac, Fannie Mae and private-label commercial mortgage-backed securities (CMBS) grew rapidly during the 1990s and accounted for more than one-half of the net growth in multifamily debt over the decade. By facilitating the integration of the multifamily mortgage market into the broader capital markets, securitization helped to create new sources of credit as some traditional portfolio investors—savings institutions and life insurers—reduced their share of loan holdings. A model of commercial mortgage rates at life insurers, expressed relative to a comparable-term Treasury yield, was estimated over a twenty-two-year period. The parameter estimates supported an option-based pricing model of rate determination; proxies for CMBS activity showed no significant effect.