A challenging servicing environment: commercial mortgage servicers and their vendor partners met in San Antonio recently to discuss some of the many new challenges they face. Growing loan complexity and Reg AB were high on their list.

Author:Eshoo, Lori
Position:Cover Report: Commercial/Multifamily

Commercial real estate servicers gathered this past June in San Antonio, Texas. The venue was a fitting one for commercial and multifamily servicers today. San Antonio is probably best known as the site of the Alamo, where a small band of men fought heroically in the face of impossible odds. While today's commercial servicing business environment is not quite that hostile, it does present some rather stiff challenges. [??] The industry gathered in San Antonio for the Mortgage Bankers Association's (MBA's) Commercial Asset Administration and Technology Conference. As president and chief executive officer of National Tax Search, a tax administration and reporting partner for commercial servicers, I attended and met with a group of our commercial lender and servicing clients. We asked these commercial real estate professionals to tell us about the challenges that most concern them--not only in the area of tax administration but in the overall servicing of commercial portfolios. [??] The topics that were most on their minds included changes in regulations, standardization, loan complexity and data security--all tough issues. [??]

SEC's Regulation AB

Commercial mortgage-backed securities (CMBS) servicers concluded their first year of reporting under the Security and Exchange Commission's (SEC's) Regulation AB. Concerns about significant issues in complying with Reg AB--specifically 1122 attestation reporting--have surfaced and now need to be addressed for 2007.

Commercial servicers are feeling the financial effects of this first year of reporting, including the cost of updating their processes and systems, and implementing the staff training required to ensure their firms pass the audit. In a May 24, 2007, MBA NewsLink article titled "Reg AB Auditors Generally Pleased With Compliance," Van Vorhis, associate legal counsel at Minneapolis-based NorthMarq Capital Inc., was quoted as saying, "Implementation of Reg AB procedures costs two to three times the amount of a typical Uniform Single Attestation Program [USAP] audit."

In addition to the cost impact on servicers, there are many unanswered questions about other firms that might be required to participate in 1122 attestation. Servicers and their vendor partners are scrambling to determine whether companies that perform only certain pieces of the servicing function on behalf of a servicer must also go through the audit process. If so, vendors and business partners are likely to experience added costs to comply with Reg AB, raising the overall cost of compliance for the industry even higher.

Other concerns about Reg AB compliance include differences of opinion over the interpretation of its provisions. This has led to potential variations in the compliance evaluations. Servicers say...

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