Forum Spotlight: Servicing Administration and Special Situations
November 6, 2023
Together, Leslie, Adam, Stacy, Tony, Pamela, and Andrea form the “Leadership Working Group” for the Servicing Administration and Special Situations Forums. The group sets agendas and priorities for the Forum, as well as represents the constituency on CREFC’s Policy Committee.
What’s new: The challenges in the market have caused renewed interest in the Servicers Forum.
- In June, the focus was on what servicers were seeing across markets for both performing and non-performing loans.
- Today, the focus is on non-performing loans, from all viewpoints—borrower, lender, and investor.
- There are no easy answers and the general consensus is that every loan and asset needs and will be individually evaluated for the option that yields the best results.
What is clear is that the playbook used in the GFC will not be the first place servicers look to for guidance in the current, very different environment.
Key Servicer Focus Areas
- Monitoring and tracking servicing activity;
- Complexity of non-recoverable advance decisions;
- Collateral/asset valuation;
- Rising delinquencies;
- Upcoming maturities and borrower ability to refinance; and
- Special Servicer remediation plans.
What they’re saying: Discussions focus on the following points:
- The transition from LIBOR to SOFR, which was scheduled to sunset shortly after the June conference and for which servicers were well prepared;
- Uncertainty around asset valuations and pricing of new loans;
- Exit strategies for loans in special servicing; and
- Borrowers looking for extensions and how they need to approach servicers with a clear exit plan and, in many cases, with collateral enhancements.
What's next: Servicers are highly focused on increased delinquencies, the volume of loans transferring to special servicing, the timing around exit strategies, and when valuations will stabilize. Servicing Forum leadership expects forum discussions at the January conference to focus on:
- The uncertainty surrounding valuations and the impact they will have on master and special servicer roles as liquidity providers; and
- What loans are in distress and what expectations are around exit strategies.
Key Policy Issues:
- SEC’s Conflict of Interest in Securitization Proposal: The definitions are broadly written and could engulf numerous CMBS participants, including servicers, and a broad range of “conflicted activities” that go beyond shorting a transaction. CREFC submitted two comment letters on the issue and is engaging with lawmakers on Capitol Hill.
- Basel Endgame Capital Proposal: The federal banking regulators have proposed raising capital on banks with $100 billion assets and above. The complex proposal could have impacts on banks that service CMBS. CREFC is working on a comment letter ahead of the January 2025 deadline.
What’s Next: Forum Leaders look forward to presenting CREFC members with an update on their forum at the Annual January Conference in Miami. Soon after, the chairs will seek nominations for the next Chair Elect to join their leadership slate.
To join the Servicing Administration and/or Special Situations Forums, please register here. For any forum related questions, please contact Kathleen Olin.