STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS

20002010 Mortgage Bankers Association (MBA). All rights reserved, except as explicitly granted. 2010

10193

Standard Roles and Responsibilities of the Master and Sub-Servicers In CMBS Transactions
the issue facing the industry is to define roles and to suggest allocated responsibilities for the master and sub-servicers in a cMBs transaction. commercial mortgage conduit lenders often source their loans through other originators such as mortgage bankers and correspondents. a common trend has been to allow the originators to retain the post-securitization primary servicing and to maintain their relationships with their borrowing clients in partial exchange for originating the loans for securitization. since many of these originators are not rated master servicers, they can only retain the loan servicing by being a sub-servicer in the securitization transaction. however, once a master servicer is appointed to the transaction, the master servicer has contractual and fiduciary obligations to ensure that the loan servicing is done in accordance with the applicable pooling and servicing agreement and the reMic rules and regulations. the originator / sub-servicer is equally bound by these servicing duties. Until the roles and responsibilities for both the master and sub-servicer in a cMBs transaction are clearly defined, there will be confusion, duplication of activities, lack of ownership of functions, and inefficiencies in servicing cMBs transactions.

Background
historically commercial mortgage loans have been serviced by mortgage banker loan correspondents, representatives or advisors that originated the loans for the lenders, and this remains true for the vast majority of commercial mortgage loans today made by life insurance companies, pension funds and gses. the services provided for those loans being serviced by the originator is well established in the portfolio lending industry. in general, the servicer provides all property and borrower level services on a non-discretionary basis subject to the approval of the lender, including services if the loan is in good standing and if the loan goes into default. however, in cMBs transactions loan servicing duties are divided among three types of servicers: the master servicer, sub-servicer and special servicer, and for a variety of reasons confusion and disagreements have arisen among these servicers about which servicer is to perform which servicing duties. the reasons include the fact that servicers fees have been tightening, responsibilities and liabilities increasing, and like before, originators want to retain the servicing
STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

of their originated loans. they do this in a securitized transaction by becoming a sub-servicer in the transaction. typically the originator or sub-servicer has the leverage to negotiate a fair servicing fee at the front end of the conduit since an originator contributes loan product to the transaction. the master servicers, often with less leverage in the transaction, often accept a smaller fee, due to competition. once the securitization closes, many master servicers delegate many direct servicing functions to the sub-servicer, often without the subservicer fully realizing the full scope and effect of the services which the subservicer is expected to provide post-securitization. another factor compounding this matter is that no standard master / sub-servicer agreement is used in the industry. While the functions required by the servicer are specifically delineated in the pooling and servicing agreement after being negotiated by all parties, the sub servicing agreement is negotiated between only two parties: the master servicer and the sub-servicer and often is very general. this leaves room for certain servicing responsibilities to fall between the cracks. servicing problems arise when responsibilities are not clearly defined in the sub servicing agreements and the sub-servicers responsibilities vary greatly from transaction to transaction, often leading to confusion or omissions. as a result, the borrower endures delay and additional expense while the master and subservicer decide who performs what function, a debate compounded by tight servicing fees.

Purpose of developing guidelines

in light of the perceived need for clearer roles and responsibilities for master and sub-servicers in a cMBs transaction, the commercial real estate / Multifamily Finance Board of governors (coMBog) approved the formation of this task force under the auspices of the coMBog asset administration committee in november, 1999. the task forces mission is to create detailed guidelines that reflect the generally accepted roles and responsibilities of master and sub-servicers in a cMBs transaction. in preparing these guidelines, task force members strove to (1) develop a detailed list of all the functions which are performed in the servicing of cMBs loans, and (2) assign each function to a party in the cMBs servicing structure, taking into account generally accepted understanding of the most likely party to perform each function and the party best able to perform each function. the guidelines can be used by the industry (1) as a checklist in new transactions to ensure that all functions are addressed and thus ultimately facilitate faster turnaround times for borrowers, (2) to educate new sub-servicers in the cMBs market on what is expected of them, (3) as a starting point for all negotiations between the master and sub-servicer and (4) to reduce the rating agencies

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

concerns arising from the absence of clearly defined servicing roles and responsibilities in cMBs transactions. the guidelines do not represent standards the industry must follow but rather are intended as generally accepted practices and a checklist for use by master and sub-servicers as they negotiate their specific arrangements on a transaction. although the accountability checklist contains a detailed list of functions and the associated responsibilities, it is not meant to be exhaustive. While the information contained here in, may reflect industry practices, the contract requirements of any particular transaction may vary or differ as each agreement is a separately negotiated contract between the parties. a servicing agreement between the master and the sub-servicer details a methodology for classifying servicing tasks that arise , allocates responsibility for them and details what process is followed to complete them. this checklist supports a methodological approach to divide and define the servicing roles, using the checklist or matrix as a complement allowing for individual contract negotiations between the parties.

staff contact
Katie Schwarting Director MBA Commercial Real Estate / Multifamily Finance

acknowlegements
Deborah O. McKinnon Vice President MBA Commercial Real Estate / Multifamily Finance Janice M. Smith Vice President 2000 Chair, Asset Administration Committee: Managing Director Bank of america Date Completed: May, 2000 Ann Hambly 2000 Chair, Standard Roles and Responsibilities Task Force President Prudential asset resources

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

cMBs Function guide

Note: the below is meant to be a guide and a beginning point for discussions only and shall not be construed as indicative of any purported industry standard (as industry standards are difficult to establish at any given time and may also fluctuate from time to time depending upon market conditions, the enactment of new laws, the relative bargaining positions of the parties, and other factors). Master servicer sUB servicer

FUnction ASSET MANAGEMENT insPections Financial stateMent / rent roll collection Financial stateMent revieW / analYsis & norMaliZation Financial stateMent Final revieW / ensUre consistencY sPecial reQUests lease revieW and recoMMendation lease aPProval assUMPtion Processing and recoMMendation assUMPtion aPProval Partial releases oF collateral / Processing recoMMendation Partial releases oF collateral aPProval research / Processing corrective docUMents (legal description of Boundaries) aPProval oF correction to docUMents easeMents / Processing recoMMendation easeMents aPProval condeMnation Proceeds

other (1)

X X X X

X X X X X

X X

X X X X

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

FUnction ASSET MANAGEMENT Continued sPecial reQUests ModiFication Processing recoMMendation ModiFication aPProval deFaUlt ModiFication

Master servicer

sUB servicer

other (1)

X X X

Financial and legal covenant Monitoring Process oF deBtor additional BorroWing reQUests aPProval oF deBtor additional BorroWer reQUests Processing oF transFer oF eQUitY interests aPProval oF transFer oF eQUitY interests deterMination oF adverse reMic events rating agencY aPProvals X X X X X

Special Servicer

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

cMBs Function guide Continued

Note: the below is meant to be a guide and a beginning point for discussions only and shall not be construed as indicative of any purported industry standard (as industry standards are difficult to establish at any given time and may also fluctuate from time to time depending upon market conditions, the enactment of new laws, the relative bargaining positions of the parties, and other factors). Master servicer sUB servicer

FUnction REPORTING csMa initial set UP File csMa data rePorting validation oF csMa data and rePorting to trUst sUrveillance rePorts taX rePorting to irs 1098

other

Depositor X X X

Entity that processes cash Special servicing X X Master Servicer provides information to Trustee and Trustee reports to Edgar

1099a / 1099c

1099 interest 8k Filing

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

FUnction SERVICING PaYMents Processing / Billing escroW / reserve adMinistration insUrance loss draFt Processing ManageMent oF Proceeds For constrUction / loss PaY taXes / insUrance reserve disBUrseMent Processing cash ManageMent PaYoFF Processing PaYoFF aPProval reconveYances Yield Maintenance calcUlations Yield Maintenance calcUlations aPProval deFeasance calcUlations

Master servicer

sUB servicer

other

X X X X

X X X X X X X X X With legal involvement (2) X X

Ucc Monitoring, continUations, releases, etc. letter oF credit Monitoring / reneWals

STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.

cMBs Function guide Continued

Note: the below is meant to be a guide and a beginning point for discussions only and shall not be construed as indicative of any purported industry standard (as industry standards are difficult to establish at any given time and may also fluctuate from time to time depending upon market conditions, the enactment of new laws, the relative bargaining positions of the parties, and other factors). Master servicer sUB servicer

FUnction SERVICING Continued letters oF credit releases groUnd lease Monitoring/ PaYMents aPProval oF transFer oF loan to sPecial servicing transFer oF Files to sPecial servicer and handoFF MISCELLANEOUS Maintain e&o PolicY FidelitY Bond UsaP advancing (P&i / t&i / ProPertY Protection) oBtain assignMents oF Uccs and loan docUMents at closing

other

X X X X

X X X X X

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STANDARD ROLES AND RESPONSIBILITIES OF THE MASTER AND SUB-SERVICERS IN CMBS TRANSACTIONS
Mortgage Bankers association aUgUst 20002010. all rights reserved.