The Great Resignation Could Raise CRE Loan Servicing Costs

Commercial real estate loan servicing costs may rise from “unprecedented” employee turnover at mortgage servicers following the decline of the pandemic, Fitch Ratings says.

However the massive departure of workers so far has not led to any noted declines in servicing proficiency among Fitch-rated primary, master and special servicers. Nor does Fitch expect any ratings implications from experienced service staffers leaving and instead views turnover on a trend-over-time basis. For instance, increased labor costs, the largest portion of servicers’ operating budgets, limit the capital available to invest in new servicing technology initiatives.

Employee training is becoming more important at the CRE mortgage servicers as turnover will bring down the average tenure and industry experience of employees as servicers hire to replace those who have left.

Turnover has been particularly high in the Kansas City, Dallas, Miami, and Washington D.C. markets, which have major concentrations of servicers, Fitch says. Servicers with geographically diverse offices and remote working options generally experienced less turnover, according to the ratings company.

Fitch explains it has seen an increased willingness among servicers to hire staff remotely almost as a defensive measure as well as means to recruit experienced talent. Remote working was limited in commercial servicing prior to the pandemic, but the experience of the firms during the crisis has shown them that many functions do not need to be done in an office that they thought had required office work to be done effectively.

Fitch expects special servicers, which added staff to address the influx of borrower requests for debt relief and defaults over the last 18 months, will see a decline in staffing as temporary secondments end and lower default volume mitigates the need to backfill asset manager departures.

The mortgage servicing industry is not the only sector in the CRE community struggling with finding qualified talent.

Reducing employee turnover and training as the pandemic recedes were seen as the most difficult challenges by apartment management professionals in a recent survey by National Apartment Association and ndp | analytics. 

Wrote one anonymous survey participant, “If you are not contacting applicants immediately, they have already moved onto something else before you have a chance to meet with them. Costs for hiring new team members are increasing with hourly wages impacting budgets.”