CMBS vs RMBS: the same idea, built for very different loans

CMBS (commercial mortgage-backed securities) and RMBS (residential mortgage-backed securities) are both bonds paid from pools of mortgages held in trust. CMBS pools hold a few dozen large, non-recourse loans on income property, with prepayment locked out or costly. RMBS pools hold many home loans whose borrowers can usually prepay, and most RMBS carry a government or agency guarantee.

Side by side

	CMBS	RMBS
Collateral	Loans on income-producing commercial property: apartments, retail, office, hotel, industrial, storage	Loans on one-to-four family homes
Borrower	A single-purpose entity owned by a sponsor	An individual household
Loans per pool	A few dozen in a conduit deal (BANK5 2025-5YR14: 25 loans on 72 properties); one in a SASB deal	Usually hundreds or thousands
Recourse	Non-recourse, with carve-outs for bad acts	Generally full recourse to the borrower, subject to state law
Underwriting	Property cash flow: DSCR, debt yield, LTV	Borrower’s income, credit and debt-to-income, plus LTV
Term and amortization	Typically 5 or 10 years, often interest-only, balloon at maturity	Typically 15 to 30 years, fully amortizing
Prepayment	Lockout, then defeasance or yield maintenance, then a short open period	Usually free; prepayment penalties on qualified mortgages are capped by federal rules
Main risk to investors	Default and loss on a few large loans; refinancing at maturity	Prepayment speed (agency); default and loss (non-agency)
Guarantee	None in private-label CMBS; agency CMBS (Fannie Mae, Freddie Mac, Ginnie Mae multifamily) is a separate market	Most RMBS are agency: guaranteed by Ginnie Mae (U.S. government) or by Fannie Mae or Freddie Mac
Credit enhancement	Subordination of junior classes	Agency guarantee, or subordination in private-label deals
Servicing of defaults	Special servicer under a PSA; REMIC limits on modification	Mortgage servicer under federal loss mitigation rules for consumers
SEC loan-level data	Schedule AL, Item 2 (commercial mortgages)	Schedule AL, Item 1 (residential mortgages)
Risk retention route	Sponsor, or up to two B-piece buyers (17 CFR 246.7)	Sponsor; exempt if all loans are qualified residential mortgages

Collateral: few large loans versus many small ones

A conduit CMBS deal is concentrated. In BANK5 2025-5YR14 the largest loan, the Southeast Workforce MHC Portfolio at $88 million, was 9.9% of the pool, and the ten largest loans together were about two-thirds of it (66.2%, summed from the prospectus loan summaries). A single default can matter to the junior bonds. An RMBS pool’s risk is statistical: thousands of small loans, analyzed with credit scores, loan-to-value and payment history across the pool.

The underwriting reflects it. A CMBS lender sizes the loan to the property’s net cash flow (DSCR, debt yield); the sponsor’s credit matters for the carve-out guaranty but not for repayment, because the loan is non-recourse. A residential lender underwrites the household’s ability to repay.

Prepayment: the biggest behavioral difference

For agency RMBS, the central risk is prepayment: when rates fall, homeowners refinance and investors are repaid early, just when reinvesting is least attractive. Consumers can generally prepay; federal rules cap prepayment penalties on qualified mortgages (12 CFR 1026.43(g)).

CMBS loans are built the other way. A typical schedule, like the Spiral loan’s in BANK5 2025-5YR14, reads L(27),D(26),O(7): 27 payments locked out, 26 payments in which the loan can only be defeased, and a 7-payment open window before maturity. Others use yield maintenance. The bondholder’s cash flow is protected, so CMBS trade on credit, not on prepayment speed. More on the borrower’s side: CMBS prepayment penalties.

Guarantees: most RMBS have one, conduit CMBS do not

Ginnie Mae securities carry the full faith and credit guarantee of the United States (Ginnie Mae); Fannie Mae and Freddie Mac guarantee their own MBS. A private-label conduit CMBS has no guarantee at all: the BANK5 2025-5YR14 prospectus cover says the loans and certificates “are not insured or guaranteed by any governmental agency, instrumentality or private issuer or any other person or entity.” Agency multifamily securities exist, but they are a separate product; see CMBS vs agency loans.

Servicing: a special servicer versus consumer loss mitigation

When a CMBS loan defaults it transfers to a special servicer, which works it out for the bondholders as a collective whole under the trust’s pooling and servicing agreement, within the REMIC limits on modification. A defaulted home loan is handled by a mortgage servicer bound by consumer protection rules on loss mitigation and foreclosure timing. A commercial borrower has no equivalent statutory process; the contract governs. See special servicing.

Regulation: same statutes, different branches

• SEC disclosure. Public deals of both kinds file loan-level data under Regulation AB’s Schedule AL (17 CFR 229.1125): Item 1 for residential mortgages, Item 2 for commercial mortgages, with different fields (credit scores and debt-to-income for homes; net operating income, DSCR, occupancy and largest tenants for commercial property).
• Risk retention. Both are subject to the 5% rule in 17 CFR part 246. RMBS made entirely of qualified residential mortgages, defined to match the consumer “qualified mortgage” standard, are exempt (§246.13). Only CMBS can use a third-party B-piece buyer (§246.7). Holding periods differ too: residential deals hold for the later of five years or paydown to 25%, capped at seven years, while CMBS follows the general rule (§246.12(f)). See CMBS risk retention.
• Compliance dates. Risk retention applied to residential deals from December 24, 2015 and to CMBS from December 24, 2016 (79 FR 77602).
• Tax. Both use REMIC elections.

Why this matters if you are borrowing

If you own commercial property, the CMBS design explains your loan’s terms: prepayment protection that residential borrowers never see, a property-only underwriting, non-recourse structure, and a servicer instead of a relationship lender. If you are weighing a CMBS loan, compare it with bank loans and life company loans, or get a CMBS quote. Residential and owner-occupied properties are not a fit for CMBS.

Related: CMBS vs ABS, CMBS primer, glossary.

Sources: BANK5 2025-5YR14 prospectus (424B2, filed April 2, 2025): cover page, “Mortgage Pool Characteristics”, Annex A-3; 17 CFR 229.1125; 17 CFR 246.7, 246.12, 246.13; 12 CFR 1026.43, eCFR current text; 79 FR 77602; Ginnie Mae.