Insurance Grabs Attention of CRE Servicers

Commenting on how insurance concerns have come to occupy center stage in today's servicing environment, Robert P. Vestewig, noted, "A couple of years ago, you got a certificate, checked it off and put it in a file. It is not so anymore."

Mr. Vestewig, chief operations officer, GEMSA Loan Services, was speaking at a session on "continuing insurance concerns" at the MBA's commercial servicing conference here, of which he was the moderator. (For additional coverage of the conference, see pages 18-19)

Daniel Rubock, vice president/senior analyst, Moody's Investors Service, noted that the Terrorism Risk Insurance Act that was signed last November is a situation of "half a loaf better than none" or like "Swiss cheese with holes."

He conceded that pricing on terrorism insurance has improved after the TRIA was effected.

"The rates are not making borrowers very happy, but they've come down from stratospheric rates, even in Manhattan," he said.

The standalone market for terrorism insurance is not completely dead, but is shifting away from this kind of coverage, according to Mr. Rubock.

Janice Smith, managing director, Bank of America, noted that once 9/11 happened, the risk was moved from the insurer to the bondholder.

Kathleen Dufraine, vice president of insurance, CapMark Services, said that CapMark took a strict approach in getting documentation, asking insurance agents and borrowers to send them disclosure notices.

Ms. Dufraine, who is responsible for managing insurance compliance on the CapMark portfolio, noted that as of June 16, CapMark had a 63%-64% response rate.

On their CMBS portfolio alone, they have had a 33% response rate.

CapMark has been "very aggressive" in making follow-up phone calls, she said.

Going on to mold concerns, Mr. Vestewig said that the signs of this are being monitored, as well as mold-related litigation.

Mr. Rubock said that Moody's is "in a study pattern" and "can't put a finger on this fungus." California has a toxic loan protection act and "as California goes, so goes the nation," he said.

Moody's is also waiting on a study commissioned by the Centers for Disease Control, the results of which are expected late this summer or early in the fall.

Ms. Smith is concerned that mold coverage is not available "in any great shape or form."

Bank of America does an environmental report and asks them to look for mold in places where they can see the growth occurring.

Fannie Mae is not requiring mold coverage Ms. Dufraine said, since there is no legislation currently, while Freddie Mac is monitoring the situation and is the only one in the industry watching it.

Another insurance concern that the industry is trying to address is the modification of ACCORD 27, a form that serves as evidence of commercial property insurance.

This open-ended form was developed in 1974 as a result of a landmark case and the MBA is spearheading efforts to develop ACCORD 28, a form with closed-ended responses, to replace the older version.

This form would also involve commercial lenders and servicers in the insurance notification process.

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