Fitch Ratings said today that CMBS special servicers have adapted new policies and procedures for reporting financial statements to the master servicer as a measure to increase transparency in loan modifications.
In its 2012 review of special and master servicers, Fitch found that although special servicers improved disclosure of modified loan terms, more than 50% of the loans it sampled did not have properly reported current or historical financial statements.
The ratings agency said in a report today that CMBS investors need more information to understand what the overall impact of a loan modification will have on a CMBS investment.
“The absence of reported financial statements challenges investors’ ability to assess the health of the property and calls into question the basis for a modification,” explained analysts.
Fitch found that the problem in most cases was a failure of communication. Financial statement for the loans had been collected and documented; but the lack of reporting to investors generally occurred because asset managers either neglected to forward the financial statements to the master servicer to be reported, or the statements were sent to a master servicer contact that was not responsible for financial statement analysis and reporting.
“It is Fitch’s view that in all instances where a loan is being returned to the master servicer as a corrected loan (with the same borrower), the master servicer should receive and report current and delinquent financial statements as a requirement for accepting the loan as a corrected mortgage loan,” explained Fitch.
The rating agency noted that the terms of the modification today are detailed and sufficient enough for investors to model modified terms of the loan. In its 2012 review, Fitch found that special servicers had improved disclosure of modified loan terms and increasingly made use of loan comment fields to communicate modification terms.
