Investors in Commercial Mortgage Backed Securities Nervous About Sharp Tactics of Special Servicers

Poor Or Rich Directions On A Signpost
Treatment of Borrowers in RMBS vs. CMBS: To Be Determined

Investors in Commercial Mortgage Backed Securities (CMBS) are objecting to the aggressiveness of special servicers.  Special servicers are transferred servicing rights to loans that are already in default.  These complaints were obliquely mentioned in a recent Fitch Ratings press release.

Apparently, just as with Residential Mortgage Backed Securities (RMBS), special servicers may be acting abusively and foreclosing aggressively, without asking questions, to realize their full profit potential, without much regard for the other parties in interest.  The abuses of so-called non-bank servicers (Ocwen, SPS, Nationstar, Caliber, Rushmore) has been covered heavily in this blog.  For a refresher, see this recent New York Times article and the Consumer Financial Protection Bureau’s official reports available here.

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CFPB Chart Top Ten Most Complained About Companies Sept 15

But commercial investors are now asking, “hey, why are a significant number of these loans being foreclosed so quickly?  Are you even attempting loan workouts (modifications)?”  Loan modifications have always been common for commercial loans and commercial borrowers were not “default-shamed” by the courts, lenders, and system as consumers have been.

Fitch Ratings plays it down (as it would).  If you’ll remember, the ratings agencies were part of the catalyst to the great mortgage meltdown of the past eight years.

It will be interesting to see what hypocrisies are exposed if the investors get worked up enough to sue the special servicers.

Homeowners who were highly motivated to modify their loans or work out alternative ways to save their homes were treated pretty shabbily by the legal system.

Investors, with more cash to fuel their trial budgets, may fare differently.

This is an odd result if you think about it because many of the homeowners had virtually no wealth, save their home.  But it’s not that odd given the turn that the U.S. has taken by glorifying wealth and confusing it with “success,” by holding none of the major players in the financial meltdown criminally liable (and letting them abscond with their wealth earned off the backs of others), and by showing a willingness to skew our very system of established law to find escape hatches for investment banks, lenders, and creditors.

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