Forums Update: Servicing Administration and Special Situations
November 26, 2024
Pamela Dent and Adam Fox (Forum Chairs), Alex Killick and Dana Jo Martino (Chair Elects), and Leslie Hayton and Tony Yousif (Past Chairs) form the “Leadership Working Group” of CREFC’s Servicing Administration and Special Situations Forums. This group sets agendas and priorities for the Forum based on members of their Forum and represent the constituency on CREFC’s Policy Committee.
What’s New: Ongoing market challenges continue to drive discussions within the Servicers Forum:
- At the CREFC June conference, servicers focused on performing and non-performing loans in various markets.
- Today, the focus is on non-performing loans, from all perspectives —borrower, lender, and investor.
- There are no easy answers. The general consensus is that every loan and asset must be individually evaluated for the option that yields the best results.
- Recent interest-rate volatility and improved market issuance through 2024 continue to create a dynamic servicing environment.
Key Servicer Focus Areas:
- Upcoming maturities and borrowers’ ability to refinance
- Monitoring and tracking servicing activity
- Transparency
- Complexity of non-recoverable advance decisions and their impact on transaction waterfalls
- Collateral/asset valuation
- Rising delinquencies
- GSE focus on property quality and tenant protections
- Loan covenants
- Increasing costs and complexity associated with maintaining required insurance coverage
- Special Servicer remediation plans
What they’re saying: Today’s discussions focus on:
- Uncertainty surrounding asset valuations and the impact on workouts and advancing
- The pick up in new issuance and the notable increasing complexity of loan covenants
- As of September 2024, there were 200 securitized transactions with transaction-level Holdback accounts, more than half of which had a balance of $50,000 or less
- Exit strategies for loans in special servicing
- Balancing borrower requests for extensions with Special Servicers’ recognition of improving interest rates and modification structures to encourage payoffs.
What's next: Servicers are highly focused on the increase in 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:
- Uncertainty surrounding valuations and their impact on the master servicer role as liquidity provider,
- Providing timely market commentary on performing and non-performing loans, and
- Identifying loans in real distress and expectations around exit strategies.
Key Policy Issue: National Flood Insurance Program (NFIP) Reauthorization.
- Unless Congress takes action, the NFIP is scheduled to expire after Dec. 20, 2024, along with government funding. Short-term extensions of the NFIP, tied to government funding, have been the status quo since the long-term reauthorization expired in 2017.
- Congress has yet to agree on a long-term NFIP extension due to sharp disagreements on program costs and coverage from Senators in flood-prone states. While the program is not expected to expire, a lapse would prevent the NFIP from issuing new policies and reduce the program’s existing borrowing authority.
- Commercial mortgages with a mandatory flood insurance purchase requirement can satisfy the obligation through the NFIP or private insurance, but CRE policies are limited to $500,000 in coverage through the NFIP.
What’s Next: Forum Leaders look forward to presenting members with an update at CREFC’s Annual January Conference in Miami. As June 2025 approaches, the chairs will seek nominations for the next Chair-Elect to join their leadership slate.
To join the Servicing Administration and/or the Special Situations Forum, please register here.
For any forum related questions, please contact Rohit Narayanan (Rnarayanan@crefc.org).