What is a Master Servicer?
Since CMBS loans are pooled together, packaged into commercial mortgage backed securities, and sold to investors, they are not generally serviced by the lender that originated the loan. Instead, conduit loans are typically serviced by a third-party servicer, referred to as a master servicer.
Master Servicers and CMBS Loans
Since CMBS loans are pooled together, packaged into commercial mortgage backed securities, and sold to investors, they are not generally serviced by the lender that originated the loan. Instead, conduit loans are typically serviced by a third-party servicer, referred to as a master servicer. A master servicer is responsible for servicing the loan through its entire term, unless the borrower defaults on their mortgage. Master servicers are also responsible for managing payments and interacting with the borrower on a regular basis. In the case that a CMBS borrower does default on their loan, a special servicer will usually be assigned. The special servicer will determine whether the loan can be salvaged (often via a loan modification), or if the property should be sent to foreclosure.
Master Servicers vs. Primary Servicers
In some cases, day-to-day communication for a CMBS borrower may actually be handled by another type of servicer, referred to as a primary servicer. In this case, the master servicer may have several primary servicers they work with in order to service a large pool of loans. While a primary servicer can often handle smaller requests on their own, for more significant requests, they generally need the approval of the master servicer.
The Challenges of Conduit Loan Servicing
Unfortunately, both master servicers and special servicers sometimes have the reputation of being somewhat difficult to work with. In part, this may be because they are legally obligated to have the CMBS investors best interests in mind, which may not necessarily be congruous with the best interests of the borrower. In addition, servicers may be dealing with hundreds (or thousands) of borrowers, so they may not have a great deal of time and attention to devote to one individual borrower.
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Related Questions
What is the role of a Master Servicer in a CMBS loan?
A Master Servicer is responsible for servicing a CMBS loan through its entire term, unless the borrower defaults on their mortgage. They are responsible for managing payments, interacting with the borrower on a regular basis, collecting and receiving collecting monthly mortgage payments and required escrows, paying insurance premiums and real estate taxes, maintaining books and records related a borrower’s loan, and keeping tabs on a borrower to prevent issues that could lead to a loan default. In some scenarios, a Master Servicer may assign a secondary servicer, known as a primary servicer, to execute many of the everyday functions that they are responsible for.
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What are the responsibilities of a Master Servicer in a CMBS loan?
A Master Servicer is responsible for servicing a CMBS loan through its entire term, unless the borrower defaults on their mortgage. Master servicers are generally responsible for handling everyday issues, such as collecting and receiving collecting monthly mortgage payments and required escrows, paying insurance premiums and real estate taxes, maintaining books and records related a borrower’s loan, and keeping tabs on a borrower to prevent issues that could lead to a loan default. In the case that a CMBS borrower does default on their loan, a special servicer will usually be assigned. The special servicer will determine whether the loan can be salvaged (often via a loan modification), or if the property should be sent to foreclosure.
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How does a Master Servicer help facilitate a CMBS loan?
A Master Servicer is responsible for servicing a CMBS loan through its entire term, unless the borrower defaults on their mortgage. They are responsible for managing payments and interacting with the borrower on a regular basis. In some cases, day-to-day communication for a CMBS borrower may actually be handled by another type of servicer, referred to as a primary servicer. In this case, the master servicer may have several primary servicers they work with in order to service a large pool of loans. While a primary servicer can often handle smaller requests on their own, for more significant requests, they generally need the approval of the master servicer. Source 1, Source 2.
What are the benefits of having a Master Servicer in a CMBS loan?
The main benefit of having a Master Servicer in a CMBS loan is that it allows for a third-party loan servicing firm to handle a borrower’s payments and any additional paperwork that is required after the loan closes. They will also generally be responsible for answering any questions that a borrower has during the term of the loan. Additionally, having a Master Servicer allows for a larger volume of loans to be serviced at once, as day-to-day communication for a CMBS borrower may be handled by a primary servicer.
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What are the risks associated with having a Master Servicer in a CMBS loan?
The risks associated with having a Master Servicer in a CMBS loan include the fact that they are legally obligated to have the CMBS investors' best interests in mind, which may not necessarily be congruous with the best interests of the borrower. In addition, servicers may be dealing with hundreds (or thousands) of borrowers, so they may not have a great deal of time and attention to devote to one individual borrower. If a borrower defaults on their loan, it will typically be sent to a special servicer, who may be able to adjust the terms of the debt. However, the special servicer works for the investors, not the borrower, so if they believe that foreclosing on the property will increase investor profits, they will almost certainly do so. In other cases, they may assist with the loan assumption process, in which another borrower would take on the CMBS debt. In general, banks and life companies are significantly more flexible when it comes to modifying loan terms when compared to CMBS. Source 1, Source 2, Source 3.