The Servicers Forum is the largest of CREFC’s Forums and also one of the most active. Our membership of over 700 represent the roles of Master Servicer, Special Servicer, Rating Agency, Trustee, Certificate Administrator, Operating Advisor, Data Provider, and other service providers. With the changing regulatory environment coming in 2016, including Regulation AB II and risk retention; the maturities and paydowns of legacy CMBS pools; and the increased new issuance volume, this Forum has looked both backwards and forwards to set industry standards and best practices for the CMBS market. All the while, the Servicers Forum continues to look for ways to provide educational programming to its members in the way of After-Work seminars, fly-in working sessions, and other roundtable events. More events are being planned for 2016 and will hit markets across the country that are home to Servicers and those who support the Servicing community.
The Servicers’ IRP Committee continues to be the leading and dominant force in our industry for guiding discussion on, and implementing, industry standards and best practices. The regulators have acknowledged the Investor Reporting Package adopted by the industry is a comprehensive and valuable product for investors and is a prototype for other ABS. The Servicers Forum is also one of the first to create the model of industry best practices, a useful tool that not only gives Servicers clear direction but can also educate other CREFC members and Forums on those important issues facing our industry. As the CMBS industry evolves, new players join, the regulatory environment drives business models, and market forces drive overall change, the role of the CMBS Servicer, especially with regard to communication, timing, and transparency to investors, will become even more critical.
Below is a summary of the Servicer Forum initiatives for 2015-2016.
Reg AB II Schedule AL Working Group
In order to ensure a standardized industry approach to implementation of the new asset-level disclosure and reporting requirements in Reg AB II, which was finalized August 27, 2014, CREFC created a Schedule AL Working Group to conduct a line by line comparison of the SEC’s required asset-level data points to the CREFC IRP and Annex A to determine which fields are new or similar, and how to report such information going forward in the most efficient and useful manner. The subject reports must be finalized and fully functional by October 28, 2016.
Investor Reporting Package (IRP) v 8.0
Since initially rolled out in 1997, the IRP has become a leading example of transparent, standardized bond, loan and property level reporting that benefits all CMBS investors and market participants. The package is a living document that adapts to changing industry, regulatory and business practices. The current version of the IRP is v 7.2, which was made effective in October 2015 to deal with delinquent loan reporting. The last major revision to the package (v 7.0) was adopted in October 2013, and it was decided in 2015 that an update was warranted. Therefore, the IRP committee worked to solicit feedback from all constituents on what needed to be changed and updated; various working sessions were held, and a change matrix was ultimately formulated. Several subcommittees were formed, tasked to create reports and clarify definitions that would effect the agreed upon changes and additions to the IRP. The new version (v 8.0) will be adopted in January 2016 with scheduled implementation in September 2016.
Standardization of Requirements for Borrower Consent Requests — Performing CMBS Loans
This committee was set up to standardize certain underwriting, closing and legal guidelines with respect to Borrower consent requests for CMBS performing loans; including assumptions/transfers of interest, easements, partial releases, lease consents and other routine servicing matters. The purpose of the endeavor is to create a more efficient and positive experience for the borrowing community as it relates to post-securitization consent matters. The committee has created a template for an initial legal checklist identifying documents and deliverables (e.g., whether title updates/endorsements will be required, what opinions will be required, what PSA notices are to be sent, etc…) required from each stakeholder, for each type of transaction, for which the servicer processing the request can distribute to its counsel.
Winding Down CMBS Trusts
According to Morningstar research, it is expected $80 billion of CMBS loans will mature in 2016 and over $100 billion are set to mature in 2017. While this volume obviously increases pressure on servicers to manage the substantial increase in payoff requests and deal with transfers to special servicing for those loans not able to payoff, it also has another, less obvious consequence; the rapid wind down of the legacy CMBS Trusts. With the termination of these Trusts, via natural expiration or “clean-up calls”, the burden of ensuring the final accounting and resolution of lingering servicing matters are handled timely falls to the Servicers. Unfortunately, the legacy pooling and servicing agreements do not give guidance on how Servicers and Trustees are to handle things such as trailing expenses or ongoing litigation once the last loan in the Trust pays off. Therefore, CREFC’s Servicers Forum has created a task force to research and develop a best practices document to address this important and potentially problematic issue. Paramount is to develop lines of early communication between all the parties involved (Master Servicer, Special Servicers and Trustees), then to develop a standardized checklist of matters that must be addressed by the Servicing community during the wind down process. The committee will also use this best practices document as a way to educate the industry on the practical implications of a CMBS Trust terminating.