N° 19-58: Banks, Non-Banks, and the Incorporation of Local Information in CMBS Loan Pricing

Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers and their properties is reflected in the pricing of US mortgages that were included in US CMBS pools during the 2000 to 2017 period. The difference in loan spread when bank-borrower distance increases from zero to the median of about 900 miles is 17 basis points, and this effect is more pronounced if the loan is collateralized by a riskier property. On the contrary, geographical distance does not seem to have any effect on the loan spread of mortgages granted by non-bank lenders. Moreover, loans granted to distant borrowers by both bank and non-bank lenders are more likely to default. Our results contribute to the emerging literature on non-bank lender behavior.