MBA VP of Commercial Servicing: CRE Servicers are Grappling with Dodd-Frank

Kathy Marquardt is the new associate vice president of Commercial Servicing at the Mortgage Bankers Association. Marquardt is responsible for coordinating all commercial business activities, such as programs and industry standards efforts. Before starting at MBA in early August, Marquardt worked in commercial servicing departments for KM Consulting and GMAC Commercial Mortgage Corporation where she designed and implemented strategies for companies to enhance commercial servicing operations as well as managed servicing operational units and wholesale acquisitions units. She sits down for this edition of In This Corner to discuss the market challenges facing the commercial servicing sector and how commercial servicing is changing in lieu of financial reform. What are the biggest challenges facing commercial mortgage servicers? On a day-to-day basis, commercial servicers are managing an increased level of loan defaults as well as an increased demand for surveillance of performing loans and properties.  On a more macro level, the key challenge is managing P&L (profits and losses) and resources in light of the uncertainty in the market and the lack of clarity about what the industry will look like in the future. How is the industry adapting to the demand for servicing distressed mortgages? Often when faced with a significantly increased workload, commercial servicers turn to technology to improve efficiency and reduce the costs. Workouts however require hands on effort by knowledgeable servicers. Commercial servicers have in some cases reallocated resources from the origination with related credit/analysis backgrounds. In other cases servicers have added employees to provide the resources necessary to manage the level of defaults. How are commercial mortgage servicers adapting to new legislation and the tightening standards for due diligence? It’s too soon to tell. The requirements of the new legislation and the effects on commercial real estate loan servicing are still being digested.  While the new legislation in some cases seems to focus on the underwriting and origination side of the business, the required changes may and likely will impact the servicing side of the business. MBA expects that as regulations are promulgated, the industry will draw on the resources of the MBA’s Constituent Councils to assist member companies in formulating required policy to ensure compliance. With recent legislation such as HAMP focusing primarily on the residential sector of mortgage origination and servicing, how do you think commercial servicing will benefit and/or suffer from the lack of federal attention? Though HAMP and other legislative efforts were directed at reform in the residential sector, we would certainly and respectfully disagree that the commercial real estate industry has been exempt from government attention. In fact there are a number of proposals on the table affecting the commercial real estate industry.  MBA and its commercial/multifamily members – including servicers – are currently grappling with the effects of new and proposed legislation/regulation on the industry. For example, the Dodd-Frank risk retention requirements affect CMBS originators; changes to the NAIC capital adequacy requirements will directly impact life insurance company lenders; multifamily lenders are absorbing the impact of changes being considered by HUD and working to help shape the future of the GSEs; and accounting standards are changing. And, as mentioned above, changes to the origination and underwriting side of the business are very likely to impact the servicing side.  MBA strongly supports regulation that is harmonious across regulating entities, and that simultaneously promotes investor confidence in the market while also advancing a re-vitalization of the commercial mortgage market. What’s your strategy going to be to keep a loan performing? Default management is focused on maximizing the recovery on the loan. How this is achieved varies based on property type, location and the specific issues with the loan/property. Workouts and modifications are among the tools evaluated by commercial servicers to achieve maximum recovery. Have someone that would be a perfect In This Corner? Email the editor.