Fitch is concerned that some CMBS special servicers are charging undisclosed fees to borrowers seeking modifications and fears the practice may be the beginning of a trend.
In a new report the rating agency said it “has been made aware of instances where modification or extension fees have been charged to the borrower, and some were far higher than expected” and not disclosed.
"The investors are not informed and that represents one of our chief issues, that being a lack of transparency and disclosure,” Stephanie Petosa, managing director, structured finance, told National Mortgage News.
The rating agency is concerned that fees -- regardless of size -- could put the fiduciary duty that special servicers have to the trust and bondholders at risk.
The fees have “the potential to call into question the real rationale behind the modification or extension for which the fee was charged,” Fitch said.
While pooling and servicing agreements include some specific fee structures for special servicing – including liquidation and workout -- they do not specifically disallow firms from charging ancillary fees. These fees might include modification, assumption or extension charges. Unfortunately, there is little in the way of guidelines for such fees and disclosure is not usually required, Fitch said.
"They are ancillary fees, or fees above and beyond standard pooling and servicing agreements, that are being used for loan modifications or extensions,” Petosa said.
Going forward, the rating agency said it would examine “whether ancillary fees adhere to the spirit of the documents and the servicing standard, and determine if a simple fix is to encourage special servicers to explicitly state fees charged borrowers so that investors are fully aware of them even if they don't agree with them.”
