CMBS Servicers Face Challenges in Current Market

NEW YORK CITY-For the first time since the inception of the US CMBS market, CMBS servicer capabilities will undergo rigorous testing this year. So says a recent report from locally based Fitch Ratings.

Fitch believes that highly rated commercial mortgage servicers will be better able to withstand a volatile market. While servicers faced and overcame challenges which occurred in recent years, including Sept. 11 and various natural disasters, this is the first significant capital markets driven stress which servicers have undergone. The limited liquidity available will affect all sectors of commercial mortgage servicing including primary, master and special servicing.

The report notes that in Q4 ’07, as new deal issuance slowed and commercial real estate CDO issuance virtually stopped, investors more closely scrutinize their structured finance bond portfolios. Servicers, whose focus had been on managing the flow of new transactions into their portfolios, often including complicated multi-note loans and insurance issues, now faced an additional new set of challenges and operational risks, including: increased inquiries from investors, including those who had never interacted with CMBS servicers prior to these events; fewer securitizations creating increased bidding competition in an already competitive market; and potential for the need of additional staff, redeployment of staff or creation of specialized groups to address shifting areas of concern.