CMBS Lenders, Servicers, and Top Trade Group Address Borrower Grievances | Practical Law

CMBS Lenders, Servicers, and Top Trade Group Address Borrower Grievances | Practical Law

Commercial Mortgage-Backed Securities (CMBS) lenders, servicers, and the Commercial Real Estate Finance Council are taking active steps to address common borrower complaints. In the wake of declining market concerns, they hope these changes, including reducing servicing fees and streamlining processes, improve the industry's market performance.

CMBS Lenders, Servicers, and Top Trade Group Address Borrower Grievances

Practical Law Legal Update w-007-0295 (Approx. 4 pages)

CMBS Lenders, Servicers, and Top Trade Group Address Borrower Grievances

by Practical Law Real Estate
Published on 24 Mar 2017 • USA (National/Federal)
Commercial Mortgage-Backed Securities (CMBS) lenders, servicers, and the Commercial Real Estate Finance Council are taking active steps to address common borrower complaints. In the wake of declining market concerns, they hope these changes, including reducing servicing fees and streamlining processes, improve the industry's market performance.
The Commercial Mortgage-Backed Securities (CMBS) industry is taking steps to improve the customer experience for borrowers.
CMBS market shares have significantly dropped in the last year (see Practice Note, Commercial Real Estate: A Look at 2016 and Beyond). While this decline is likely connected to increased regulations surrounding the industry and capital market volatility, borrowers' frustrations with the CMBS process are likely also to blame.
Borrowers' main complaints about CMBS loans include:
  • At origination:
    • unclear loan documents;
    • conflicting provisions in documents; and
    • overly burdensome fees.
  • For master servicers:
    • lengthy response times and high costs for routine requests;
    • property-level reporting being untimely or inaccurate; and
    • status reports for troubled loans being poor quality.
  • For special servicers:
    • property dispositions being untimely or unfair; and
    • fees being improperly charged.
Changes in the industry are coming from both industry trade groups, such as the Commercial Real Estate Finance Council (CREFC), and from individual lenders and servicers.
In September, CRECF established a Servicing and Issuer Task Force to create uniform standards and practices for the CMBS industry. The group hopes to have a basic structure in place by the end of 2017.
While those discussions are underway, CMBS lenders and servicers are also instituting changes. Some of the top CMBS lenders, including J.P. Morgan and Wells Fargo, and servicers, such as Wells, Midland Loan Services, KeyBank, and Berkadia, are independently implementing widespread borrower-friendly improvements. These efforts include:
  • Clarifying individual loan documents.
  • Simplifying pooling and servicing agreements.
  • Creating borrower feedback surveys.
  • Requiring less paperwork (for example, not requiring contractor invoices and receipts when seeking a cash disbursement of $500,000 or less from a reserve account).
  • Eliminating servicer fees for:
    • reserve disbursements;
    • lease approvals;
    • letter of credit releases; and
    • reviews of property management and hotel franchise agreements.
  • Establishing new customer support channels.
For more information on CMBS lending, see Practice Note, Commercial Mortgage-backed Securities (CMBS) Finance: Overview and CMBS Loan Negotiation: Borrower's Counsel Checklist.