The fees that special servicers charge borrowers seeking loan modifications may present risk to bondholders, borrowers and the recovering CMBS market, said Fitch Ratings in a report today.

The rating agency said that because special servicers have a fiduciary duty to the trust and bondholders, any fee charged to a borrower implicitly puts that fiduciary duty at risk.

"These fees may be allowed within the framework of the loan documents or the Pooling and Servicing Agreement (PSA)," Fitch analysts explained in the report. "They do not specifically disallow special servicers from charging ancillary fees such as modification, assumption or extension fees, nor do they usually suggest guidelines on those fees."

At the same time, PSAs do not require special servicers to disclose these ancillary fees collected from the borrower.

"This makes the additional fees difficult to accurately quantify, but we have been made aware of instances in where modification or extension fees have been charged to the borrower [and] some were far higher than [we] would have expected," Fitch analysts said. "Most troubling, was that they were not readily disclosed to investors."

Fitch analysts added that a fee charged to a borrower and not disclosed to bondholders, particularly when the fee is significant, "has the potential to call into question the real rationale behind the modification or extension for which the fee was charged."

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