Page 82 - FINAL CFA SLIDES DECEMBER 2018 DAY 14

Session Unit 15:
53. Introduction To Asset-Backed Securities

CMBS mortgages are structured as nonrecourse loans -lender can only look to the collateral as a means to
repay a delinquent loan if the cash flows from the property are insufficient. In contrast, a residential
mortgage lender with recourse can go back to the borrower personally in an attempt to collect any excess

of the loan amount above the net proceeds from foreclosing on and selling the property.

For these reasons, the analysis of CMBS securities focuses on the credit risk of the property and not

the credit risk of the borrower. 2 key ratios are used to assess credit risk.

tanties

The lower this ratio, the more protection the mortgage lender has in making the loan. Loan-to-value ratios
determine the amount of collateral available, above the loan amount, to provide a cushion to the lender
should the property be foreclosed on and sold. Remember: the lower the better for this ratio from the

perspective of the lender and the MBS investor.