Banks, non-banks, and the incorporation of local information in CMBS loan pricing

Comparing banks to non-bank lenders, we investigate whether the geographical distance between lenders, borrowers, and their properties is reflected in the pricing of US mortgages that were included in US commercial mortgage-backed security (CMBS) pools during the 20 0 0 to 2017 period. The difference in loan spreads when the bank-borrower distance increases from zero to the median of about 700 miles is 10 basis points, and this effect is more pronounced if the loan is collateralized by a riskier property. On the contrary, geographical distance does not seem to have any effect on the loan spread of mortgages granted by non-bank lenders. The difference in loan pricing across originator types (even after controlling for key mortgage and property characteristics) suggests that banks and non-bank lenders have different incentives, lending technologies, and/or different types of borrowers. Our results contribute to the emerging literature on non-bank lender behavior.& COPY; 2023 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license ( http://creativecommons.org/licenses/by/4.0/ )