Explain why commercial mortgage-backed securities do not trade like residential mortgage-backed securities in the market

What will be an ideal response?

It is because of the substantial prepayment protection at the loan and structure level that a commercial mortgage-backed security (CMBS) is not viewed in the market in the same way as
a nonagency residential mortgage-backed security (RMBS). Rather, CMBS trades in the market like a corporate bond rather than a nonagency RMBS.

A commercial mortgage loan is originated either to finance a commercial purchase or to refinance a prior mortgage obligation. Unlike residential mortgage loans, where the lender relies on the ability of the borrower to repay and has recourse to the borrower if the payment terms are not satisfied, commercial mortgage loans are non-recourse loans. This means that the lender can only look to the income-producing property backing the loan for interest and principal repayment. For residential mortgage loans, "value" is either market value or appraised value. For income-producing properties, the value of the property is based on the fundamental principles of valuation: the value of an asset is the present value of the expected cash flow. This makes trading for commercial mortgage loans more risky because it is difficult to estimate future cash flows and discount rates that are needed to arrive at the value of a commercial mortgage loan.