React to each of the following questions. A mortgage is more valuable as part of a...

React to each of the following questions.

A mortgage is more valuable as part of a CMBS offering than as a non-securitized mortgage.

Expert Solution

Answer:-

Commercial mortgage-backed securities (CMBS) are fixed-income investment products that are backed by mortgages on commercial properties as collateral such as multi-family residences and commercial real estate like shopping complexes and malls.

The underlying loans that are securitized into CMBS include loans for commercial properties such as residential buildings and complexes, factories, hotels, office buildings and shopping complexes.

The CMBS can be a combination of collateralized debt obligations (CDO) and collateralized mortgage obligations (CMO) in the form of bonds. The mortgage loans that form a single CMBS act as the collateral in the event of default and the principal and interest passed on to investors.

The mortgages are more valuable in CMBS as they are secured and are having higher credit ratings. They have lower probability of default and are more safer investments. The non-securitized mortgages are not backed by any collateral are having lower credit rankings and the probability of default is higher than CMBS.

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