Comparing Securitized and Balance Sheet Loans: Size Matters

We assemble a unique data set of commercial mortgages with information on loan characteristics at origination and subsequent performance. The most significant difference between securitized and balance sheet loans is the size of the loan. The loans in the highest loan size decile have a 43% chance of securitization, whereas the ones in the lowest decile have only a 1% chance. This result is consistent with diversification being a key motivation for securitization. We also find that loans that require substantial monitoring are less likely to be securitized. Finally, securitized loans get resolved less quickly after defaulting.

This paper was accepted by Neng Wang, finance.