CMBS and Conflicts of Interest: Evidence from a Natural Experiment on Servicer Ownership

Abstract

I study a natural experiment in commercial mortgage-backed securities (CMBS) where some special servicers changed owners (treatment group) from 2009-2010 but not others (placebo group). The ownership change linked sellers (special servicers who liquidate CMBS assets on behalf of bondholders) and buyers (new owners), presenting a classic self-dealing conflict. Average loss rates for liquidations are 11 percentage points higher (implying additional losses of $3.2 billion for bondholders) after treated special servicers changed owners, but not for the placebo group. I provide the first direct measure of self-dealing that links buyers and sellers in securities markets in the United States.