Commercial Mortgage-backed Security
Main article: Mortgage-backed securityCommercial mortgage-backed securities (CMBS) are a type of mortgage-backed security backed by mortgages on commercial rather than residential real estate.
CMBS issues are usually structured as multiple tranches, similar to collateralized mortgage obligations (CMOs), rather than typical residential "passthroughs." The typical structure for the securitization of commercial real estate loans is a Real Estate Mortgage Investment Conduit (REMIC), a creation of the tax law that allows the trust to be a pass-through entity which is not subject to tax at the trust level.
Many American CMBSs carry less prepayment risk than other MBS types, thanks to the structure of commercial mortgages. Commercial mortgages often contain lockout provisions after which they can be subject to defeasance, yield maintenance and prepayment penalties to protect bondholders. European CMBS issues typically have less prepayment protection. Interest on the bonds may be a fixed rate or a floating rate, i.e. based on a benchmark (like LIBOR/EURIBOR) plus a spread.
Read more about Commercial Mortgage-backed Security: Organization, Industry Participants
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