Commercial Lenders, Servicers Adapt to Changing Environment

MBA (5/28/2008 ) Murray, Michael
Current conditions in capital markets and related effects on commercial mortgage-backed securities (CMBS) have led servicers to give more thought toward training and cross-training of personnel.
Leslie Fairbanks, managing director and company head in the real estate asset management group at Wachovia Securities, Charlotte, N.C. said many underwriters from the CMBS origination team have been drafted into CMBS surveillance as portfolio diversification leads to more agency activity.

“They have a little bit of time on their hands,” Fairbanks said.

At the Dallas servicing branch of Prudential Mortgage Capital Co., and at Prudential Asset Resources, cross-training occurs, while capital source determines asset management. FHA remains separate because of a formulaic and different program with different systems.

“We didn’t want our people switching servicing systems all day long,” said Catherine Rodewald, managing director at Prudential Mortgage Capital Co. and president of Prudential Asset Resources.

Rodewald's commercial servicing staff at Prudential Mortgage Capital Co. in Dallas has 18 months to achieve certification in the Commercial Certified Mortgage Servicing (CMS) Level I coursework from CampusMBA, the education arm of the Mortgage Bankers Association, for retention and training purposes.

"Training has taken on an even more significant role given the current credit environment and increased lender requirements as well as the intricate compliance issues and technology that servicers must know and understand," said Sherri Oddo, senior vice president of servicing and closing at Q10|Essex Financial Group, Greenwood, Village, Colo.

Oddo and her entire servicing team are working toward their Commercial CMS Level I Certification through CampusMBA. Oddo and her team also completed two three-hour insurance training sessions with Insurance Advisors, Stamford, Conn.

At Q10|Essex Financial Group, a firm that services its own portfolio and sub-services five companies for $3.5 billion of commercial mortgage debt outstanding, three portfolio managers focus on specific company portfolios, working directly with companies and borrowers on lender servicing requirements and borrower requests. The firm also has a cash management specialist for payment processing and banking functions, and a servicing specialist that focuses on insurance monitoring and review, providing insurance expertise.

"Cross-training and professional development within the team is very important and is much easier if they have a big picture understanding of our role as a servicer," Oddo said. "It is critical that we have a strong foundation of knowledge in our industry."

Daniel Bober, executive vice president at Wells Fargo Commercial Mortgage, San Francisco, said the commercial mortgage group at Wells Fargo is “living through a fair amount of succession" as staff with 25-30 year careers at the bank retire and leave the business, while younger staff enter commercial mortgage servicing during a time of flux.

“There is a next generation that has already been groomed and sees an opportunity to be on stage,” Bober said. “As we wait and see what the next wave will be in real estate finance, it will be interesting to see what opportunities present themselves as a result of that.”

Rodewald said the Dallas-based, borrower-centric servicing staff of Prudential face pressure from originators and borrowers. “I worry about keeping people in this particular environment because I would say that, probably, the words coming from my senior management is that I should be taking better care of the borrower today than I ever have,” she said.

“We’re not talking about borrower satisfaction here. We’re talking about protecting the entire trust,” said Michael Lipson, executive vice president at Capmark Financial Inc., Horsham, Pa. “That’s going to take more time, more people and more cost.”

Kevin Donahue, senior vice president in the special servicing group at Midland Loan Services Inc./PNC, Overland Park, Kan., said Midland warehouses talent in other areas and redeploys staff. Special servicing and workouts could bring younger talent up from consulting and surveillance if delinquencies or problem loans start to increase.

“We expect that trend to continue for the next couple of years,” Donahue said.

For some companies, however, servicers are training or cross-training staff rather than reallocating individuals.

“We don’t separate those groups or sectors into different areas,” said Janice Smith, managing director of the capital markets group at Bank of America, Charlotte, N.C. “We have an extremely diverse group of people that track each other every day. We have areas of expertise within the experience of our staff. We manage those into the everyday functions we perform. It’s not a division so it’s not like having to reformat a platform for us.”

Smith said some loans currently at Bank of America are moving “microscopically” in and out of special servicing but nothing simulating hard foreclosures.

“We’re just not seeing this mass transition to defaults or a special servicer,” Smith said. “They are still in our portfolio—still less than 1 percent—very, very low.”

“Our entire delinquency default rate is less than half of one percent in our entire portfolio across the board—single digit transfers to special [servicing] and asset management,” Lipson said. “There is this fog out there. What is in the future? It’s a little hard to tell based on what is going on today…Will levels of [high single-digit delinquencies in regional banks] spill over into partial CMBS and other parts? Time will tell."