Research

Publications

Skin in the Game and Securitized Commercial Mortgage Pricing Before the Global Financial Crisis

Forthcoming, Economics Letters (2025)

With Akos Horvath, Xingliang Ma, and Jacob Sagi

Abstract: We test the hypothesis that misaligned incentives in the securitized commercial real estate mortgage market led to loan underpricing in the run-up to the Global Financial Crisis. After controlling for property, loan, and market characteristics, as well as various fixed effects, we find that the pricing of commercial real estate mortgages originated for placement into commercial mortgage-backed security trusts did not meaningfully depend on whether non-investment grade (junior) tranches of such trusts were sold soon after issuance into collateralized debt obligation pools.

Working Papers

Risk Perception and Loan Underwriting in Securitized Commercial Mortgages 

FEDS Working Paper (2024)

With Simon Firestone, Akos Horvath, and Jacob Sagi

Abstract: We use model-implied volatility to proxy for property risk perceptions in the commercial real estate lending market. Although loan-to-value ratios (LTVs) unconditionally decreased following the Global Financial Crisis, LTVs conditioned on implied volatility and other theoretically motivated fundamental determinants of optimal leverage show no conclusive trend before or after the crisis. Taking reported property and loan attributes at face value, we find no clear pattern of unwarranted credit being extended to commercial real estate assets. We conclude that systematically higher LTV decisions pre-crisis would have primarily stemmed from risk misperceptions rather than imprudent practices. Our findings suggest that the aggregate LTV level should be interpreted as a proxy for lending standards only after controlling for aggregate risk perceptions, among a host of asset and lending market factors. Our findings also highlight the importance of measuring and tracking aggregate risk perceptions in informing regulators and policymakers.

Projects in Progress

Homeowners Associations and Condominium Maintenance: Evidence from Florida

Other Research

Who Received PPP Loans by Fintech Lenders?

FRBNY Blog Post (2021)

With Asani Sarkar, Claire Kramer Mills, and Jessica Battisto

Who Benefited from PPP Loans by Fintech Lenders?

FRBNY Blog Post (2021)

With Asani Sarkar, Claire Kramer Mills, and Jessica Battisto