Commercial Servicers Face Host of New Challenges
Commercial servicers are faced with a number of challenges in a complex and evolving environment. Increasingly loans are being split up, there are insurance issues in the aftermath of some major storms in recent years, as well as the ongoing terrorism insurance issue, there is the possibility, however small, of spillover of the recent subprime sector problems into the commercial mortgage arena. The emergence of the collateralized debt obligation product presents an opportunity as well as a challenge. Recent signs of excess in commercial mortgage lending, particularly on the securitization side, also point to the possibility of higher default risk down the road. These are the most talked about issues and would appear to be the ones at the top of most commercial servicers' minds. However, it emerges that the one issue of most concern to commercial servicers is technology and its use.
At the Mortgage Bankers Association's recent Commercial Real Estate Asset Administration & Technology Conference in San Antonio, some of the major issues were discussed. Even though loans have become increasingly complex and insurance issues have come to the fore recently, an audience poll at the conference revealed that servicers view technology as the most important challenge for them. After technology, other issues of concern to servicers are product complexity, need for standardized forms, mitigation of risk and importance of education.
While the subprime lending spillover factor was identified as an issue, this did not emerge to be a major concern for the servicers attending a wrap-up session at the conference. Communication, both internal and external, was another issue identified, along with company evolution, the regulatory environment and the insurance environment.
Risk mitigation is certainly on the mind of a lot of servicers. This is an emerging issue, according to Kathleen Dufraine, vice president, Global Realty Outsourcing, considering that credit enhancement and springing lock boxes are being talked about and environmental issues are coming to the fore.
Insurance will always be a key issue, according to Ms. Dufraine, and servicers need to work with the insurance industry. The MBA has created a committee and put out a white paper on the topic of force-placing insurance. Servicers have to adapt to changes, according to her. Outsourcing and offshoring are continuing to be popular options.
And as loan products get more complex, there will continue to be continued regulatory scrutiny.
As for the possible fallout from the subprime sector issues, Deborah Schiavo, managing director, Bear Stearns, said that as a consequence of B&C issues, the impact of which has been filtered down throughout the commercial and multifamily area, spreads have widened and underwriting has been highlighted. Lenders are becoming more conservative considering the possibility that they might take a hit on loans that will be securitized. The upside of this is that higher single-family defaults are likely to lead to more multifamily business.
About the importance of communication, Ms. Schiavo observed that it is surprising how little communication there is throughout the assumption process. Letting everyone in the process know what's going on can help borrowers be more patient.
Dan Szparaga, the MBA's acting vice president for the Mortgage Industry Standards Maintenance Organization, believes that the MISMO initiative has a key role in dealing with all sorts of issues, facilitating the flow of information through the backend and providing potential for savings.
Suzie Bashore, vice president, information technology, Prudential Mortgage Capital, noted that Prudential's theme is trying to standardize a lot of processes and pinning down responsibility.
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