Credit risk is an important consideration for commercial mortgage-backed securities (CMBS) if the CMBS are backed by mortgage loans that:
A) are non-recourse.
B) have call protection.
C) have prepayment penalty points.

Question

Quizplus · Accepted Answer

Non-recourse loans do not provide the lender with any recourse to the borrower's assets other than the property being financed. Therefore, in the event of default, the lender's only option is to foreclose on the property. This increases the credit risk for the CMBS investors, as the value of the property may not be sufficient to cover the outstanding loan balance. Conversely, call protection and prepayment penalty points reduce the credit risk by providing additional cash flow to the CMBS investors and limiting the risk of early loan repayment.

Credit Risk Is an Important Consideration for Commercial Mortgage-Backed Securities