United States: The Dilemma Of The Really Annoyed Borrower

Last Updated: July 26 2017
Article by Richard D. Jones and Mia Rosati

Since my earliest days in the CRE capital markets biz, there has always been a drumbeat of grumbling from the borrower community about the annoying complexity, expense and delay of having one's loan serviced in a capital markets transaction. It's been going on forever. Like noise, like listening to Brits complaining about their weather; it's ubiquitous, apparently personally gratifying, but largely inconsequential for outcomes. The business goes on. Data indicates that as many as 60% of all new CMBS loans come from refinancing non-CMBS loans, so it's not like a structured finance ghetto here. The sell side takes comfort from the old saw that no sensible borrower would go to the CMBS window except as a last resort... like, three basis points or five bucks in extra proceeds. Ok, that's a tad too harsh and dismissive. But going to the capital markets window for lower rates, more proceeds or less recourse is entirely rational. On the other hand, the narrative about the pain through servicing in the capital markets is also real. The sell side and the servicing community are aware of borrower dissatisfaction, aware that something should be done. Efforts to do so however run into the heretofore immovable object of investor's not unreasonable enthrallment to even more control. To date, we have not found a way to square the circle. Time we did? Back in 2002, I wrote an article together with my friend, Mark Hill, called The Miranda Warnings. The article, which was published in CMSA World (we've had a lot of name changes over the last 25 years), advised borrowers about the facts of capital markets lending that they should consider when knocking on the CMBS door. I just reread it and it is still fairly relevant.

Since we wrote that article in 2002, CMBS execution has become more complex. Back in those days, pools had one special servicer, special servicers didn't get swapped around for a few bps, and there were fewer bespoke arrangements between masters, specials, primaries and control class representatives than there are today. The consequence of all that engineering, which, let's face it, is not the random tinkerings of an unengaged deity but engineering designed to meet the needs of investors, has made the borrower experience less good and borrowers crankier. With the best of intentions, if you have to ask three people whether they think a new lease is a terrific idea or not instead of one, it's gonna take more time, cost more money and create painful uncertainty.

In the great tradition of Henry V, "once more into the breach," CREFC has been focused on this issue for the past year and there is an active committee of about 20 issuers and servicers attempting to come up with ideas for streamlining the servicing process and making the servicing experience less annoying. The Committee is in the process of preparing a set of uniform standards and practices for CMBS issuers and servicers, which it anticipates releasing to the public within the next two months. The Committee has stated that its goal is to improve the borrower experience and that it is taking the concerns of borrowers extremely seriously. However, because the Committee is faced with balancing the competing needs of issuers and servicers, they are playing their cards close to the chest, so stand by.

Will any of this work in a material way? Will any of this actually make the servicing experience better for the borrowers? The jury's out. There's certainly plenty of room to make it slightly better. But then, in some circles, the question gets whispered, "do we really need to?" If the data suggested that borrower's demand is robust, then perhaps not. Uh oh, CMBS outstandings have plummeted from over $800 bb to less than $400 bb in the past decade. So I guess making the borrower experience better might not be an entirely stupid idea. Not to wax too philosophic but we ain't got much of a business if there are no borrowers. (No one needs to point out to me that without investors we don't have much of a business either, but do we have the balance right?) Is this a zero sum game where what's good for borrowers is also bad for investors and servicers, and vice versa? That is certainly true to some extent, but it's not time to give up.

We've gotten here, in some measure because borrower issues can get marginalized when the sausage making machine that is the PSA and the other documentation of a securitization gets built. The sell side and the service providers are at the table, lawyered up and loaded for bear. The borrowers are but a hovering presence. Oh yes, it's easy to say, "Remember, we actually have to make this work for the borrowers," but they're not there and therefore I think the urgency of their concerns is suppressed. That's just human nature.

It's high time we whip out the Ouija board, establish contact with the other side and figuratively bring them to the table and make all this work better for the father of the feast.

Wielding Occam's Razor, to materially improve the servicing experience we need to reduce the number of bilateral contractual consents required in the servicing structure, eliminate unanticipated fees and increase decisional spend. Easy, right? There's lots of good ideas out there. I'm hopeful that CREFC will embrace some. Could we build a two-speed servicing process? Could we treat assets with good performance differently? Could we build in fast track mechanisms for assumptions, for releases, for defeasance where the ask is clearly down the middle of the fairway? Could we create provisions that default to a yes when answers are not forthcoming, so borrowers could get on with their business? Could we all just agree that borrower paid fees all need to be scheduled and the servicing consent process needs to be more transparent so that there will be fewer bad surprises?

Again, is this a zero sum game where making the process more amiable for the borrower community hurts investors? Does it fatally impair the economics of the servicers? That can't be right. The bar can be moved and the circle can be squared, or at least it's worth a try. And kudos to CREFC and its members for trying. It seems to me there's plenty of room to make the process more linear, more rapid and more price efficient than it is right now without impairing prudent servicing. Let's bring a little common sense to the table here. Dodgy loans need more intrusive servicing and good loans need less. A step in that direction would eliminate a big reason why borrowers hate us so.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.