Top Five Commercial Mortgage Servicing Issues to Watch in 2022
Andrew Foster is Associate Vice President in MBA’s Commercial/Multifamily Group. He is a former Analyst with S&P Global Ratings and Fitch Ratings as well as a regular contributor to MBA NewsLink and MBA Commercial/Multifamily NewsLink. He can be reached at afoster@mba.org or 202/557-2740.
While the entire country readjusts to the routines of yesteryear, loan servicing and asset management professionals will have an interesting set of dynamics impacting their organizations in the new year. The second half of 2021 is perhaps best described as a welcome shift back to growing pains. Broadly speaking, property values, transaction volumes and lending have headed in a positive direction across capital sources and product types led by a voracious appetite for multifamily and industrial product.
With 2022 quickly approaching, MBA’s Servicer Council recently hosted a discussion with servicing executives from PGIM Real Estate, SitusAMC, Mount Street, Berkadia and Trimont, who shared perspective on the challenges and opportunities facing the sector.
Five key issues for commercial mortgage servicers heading into 2022:
1. Get Well Soon: The recovery in commercial mortgage loan performance has been swift even while distress levels for private-label commercial mortgage-backed securities (the most transparent portfolios where performance data is widely and quickly made publicly available) remain above pre-pandemic levels. The outcomes for commercial mortgages that remain in default or forbearance will remain a focus for servicers focused on non-performing portfolios.
Most issues reside in retail, hospitality and potentially office collateral, more than other property types. The winners and losers across various property types is a defining feature of the current business cycle. Further, the Sunbelt states seem to be clear geographical winners with many of these markets seeing outsized population and job growth along with stronger fundamentals.
2. Wish You Were Here: Staffing is presenting challenges across the broader economy and commercial mortgage servicers are feeling these effects. There are the issues of attracting talent as well as managing turnover, training and building teams/culture. These dynamics are taking place against a backdrop of changes in attitudes about working in an office vs. remotely.
“Commercial mortgage servicers are facing unprecedented turnover levels and filling open positions in the tight labor market may ultimately increase the cost of servicing loans,” Fitch Ratings said in a recent research note.
3. Triggered: Defining features of the growing finance market include increasing volumes and complexity of the lending environment from loan triggers to stakeholder requirements for real-time reports. Further, the nature of handling bridge loans, loan participations and preferred equity investments can be more complicated than long-term fixed-rate loans. From loan boarding to loan payoffs and everything in between, servicer operations are bustling.
“The staffing issue has been further exacerbated by the increasingly complicated nature of the deals that servicers manage. Growth in the CLO, transitional loan, bridge loan and highly participated loan markets has a direct impact on how servicers conduct business,” Midland Loan Services’ Chief Operating Officer David Harrison said in a recent interview with MBA Newslink.
4. Where the Industry Truly Excels: Technology is of course one tool to increase productivity and efficiency; however, the ability to leverage technology to address staffing challenges is relatively limited. One area where it can help further improve some operations is servicer’s ability to provide stakeholders with a good experience and enable them to gain real-time access to portfolio details, reports, and statistics. This capacity remains an important imperative and something technology has and will continue to play a substantive role in facilitating as stakeholder demands for information continue to increase.
“Historically, servicers have been able to leverage technology efficiencies to mitigate increased labor costs and employee departures; however, there are limited new operational efficiencies on the horizon, and increased labor costs, the largest portion of servicers’ operating budgets, limit the capital available to invest in new initiatives,” Fitch Ratings said.
5. Don’t Rain on My Parade: There remains a host of regulatory and legislative issues on the radar, including privacy rules, cyber security challenges and a potential Consumer Financial Protection Bureau rule with implications for operational requirements.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to NewsLink Editor Mike Sorohan at msorohan@mba.org or NewsLink Editorial Manager Michael Tucker at mtucker@mba.org.)
