The CMBS Loan Securitization Process

How CMBS Lenders Pool and Package Loans-- And What Borrowers Need to Know

The CMBS securitization process involves a lender taking a variety of conduit loans, often up to 100 at a time, pooling them together, and selling them as bonds. Typical conduit lenders usually have between 3 and 8 securitizations each year.

During securitization, each CMBS is broken into tranches, or segments, which can give investors a variety of options when it comes to risk, rate of return, and payment priority. For example, the lowest-risk tranches will be paid first, but have lower interest rates, while the highest risk tranches will be paid last, but will usually have a significantly higher interest rate.

Conduit Loans May Be Switched to Different Servicers After Securitization

If you take out a conduit loan, after the loan is securitized, it may be sent to a different servicer, which could make things confusing, so you should check in order to determine if your loan will continue be to serviced by your original lender or will be serviced by a third party. Otherwise, you may miss out on valuable information that could cost you serious money.

In addition, after securitization, borrowers are typically locked-out from prepaying their loan until their lender successfully sells the CMBS on the secondary market. Once the CMBS is sold, a borrower can typically proceed with prepayment via yield maintenance or defeasance (though there may be an additional lockout period, depending on the loan agreement.)