Industry professionals are recognizing that the long-term appeal of CMBS for commercial real estate finance may be diminished if the borrower experience with loan servicing is poor. Recently, Stacey Berger, an Executive Vice President, and Bob Wright, a Senior Vice President, of Midland Loan Services, a major CMBS loan servicer, wrote a piece on what can be done to improve the CMBS borrower servicing experience.
The authors note that borrowers typically don’t have a choice of servicer for a CMBS conduit loan. CMBS issuers sell the master servicing rights to a select group of bidders and special servicers are selected by the transaction investors. So borrowers cannot select a servicer based on quality of service. Borrower-initiated lender approval requests are one of the most important interactions between the borrower and servicer. These can range from routine to major credit issues, and the servicer’s performance while handling these interactions is a major factor in determining borrower satisfaction. Setting appropriate expectations as well as establishing reasonable time frames and fees is critical to a successful result.
Progress is being made to streamline approval requests. Master servicers can now approve routine borrower requests such as reserve releases and minor lease and budget approvals, while major credit approvals, such as assumptions, change of ownership, or property management changes, are directed to the special servicer for its approval. These recent changes are improving the efficiency of the borrower/servicer interaction.
However, borrowers need to understand that servicers can’t review and approve requests without complete information, which is required to make the decision. Servicers need to be specific about what information borrowers need to provide up front and follow up with the borrower regarding missing information. Effective communication between the servicer and borrower is key to improving the borrower experience for CMBS conduit loans.