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Investors Send Commercial Mortgages to Special Servicers at Rapid Pace

The number of loans pooled in commercial mortgage-backed securities (CMBS) that require a ""special"" touch as they edge dangerously close to default is rapidly increasing.

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""Fitch Ratings"":http://www.fitchratings.com reported Friday that the risk of default is spreading so quickly through the secondary commercial market that the volume of specially serviced CMBS loans grew to approximately 5,000, totaling $81.7 billion at the end of the first quarter of 2010.

The ratings agency says special servicers continue to add staff, restructure their organizations, and employ new technologies to manage the rapidly escalating workload.

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Firms are adding employees with previous workout experience at the senior level, and adding employees with some level of real estate knowledge at the junior level, Fitch says. They are also freeing up experienced asset managers from the time consuming administrative tasks associated with workouts to allow them to keep their focus on the real estate, according to Fitch.

The proliferation has also given rise to creative workout strategies for commercial mortgages.

""Special servicers are now engaging in bulk note sales, modifications into A/B notes, and forbearance,"" explained Stephanie Petosa, a managing director at Fitch.

However, Petosa noted that “the majority of the loan workouts remain within the more traditional realm of extensions, modifications, and foreclosures.""

Ftich says, though, that there is no standard workout strategy tied to a specific servicer, property type, or location. Special servicers approach each asset on a case by case basis, the ratings agency said.

""Fitch recently reported"":http://dsnews.comarticles/cmbs-delinquencies-hit-new-all-time-high-2010-05-03 that during the first three months of this year, 487 CMBS loans defaulted totaling $8.43 billion.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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