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CFA Level I · CFA Level I Exam · Mortgage-Backed Security (MBS) Instrument and Market Features

Compared with residential mortgage-backed securities, the loans underlying commercial mortgage-backed securities (CMBS) are most likely:

CMBS loans are most likely non-recourse with limited prepayment flexibility. The lender can claim only the property if the borrower defaults, and call protection such as lockouts, penalties or defeasance discourages early repayment, unlike typical residential mortgages.

  1. Anon-recourse loans with limited prepayment flexibilityCorrect
  2. Bfull-recourse loans that borrowers can prepay freely
  3. Cfully amortizing loans with no balloon payment at maturity

Explanation

Commercial mortgage loans are typically non-recourse, so lenders can look only to the property and its income, not the borrower. They also carry prepayment protection such as lockouts, defeasance or penalties. Residential loans are usually prepayable freely, and commercial loans often have balloon payments.

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