The MBA held its annual Commercial/Multi-family Servicing and Technology Conference in Los Angeles earlier this month. Management and members of our servicing team spent several days meeting individually with our correspondent lenders, networking with peers, and learning about key issues impacting our industry. We also invited three junior members of our servicing team to participate in the conference and the MBA’s mPact program; a network for young professionals in real estate finance.
After attending dozens of panels at this year’s event, we wanted to share our thoughts on three topics we believe have the most relevance to our borrower/sponsor clients.
- After many years of soft pricing, coupled with large catastrophic losses in 2017 and 2018, the insurance market is now in a corrective state. Catastrophic coverage losses from hurricane’s, floods, and fires have been able to be absorbed for the most part by reserves and reinsurance, however, there is little room to cover any new events. If we have another high claim year, reinsurance rates will increase which in term will drive up premiums.
- Insurance companies are restricting capacity, increasing premiums, raising deductibles and in many cases exiting certain asset classes. In addition to rate increases, there are additional costs coming from buying down deductibles to comply with loan requirements.
- Sponsors who have owned property for a number of years should look at replacement values as costs of new construction have increased substantially. Both lender and carrier scrutiny around increasing replacement cost valuation is increasing the cost of insurance.
- Flood Insurance Certificates will become more standard with all loans, particularly in Texas.
- Servicers continue to invest in digital initiatives to improve the borrower experience and streamline servicing processes. Customer facing applications and services that are used in the residential space will work their way over time to the commercial side which is much more complicated.
- Servicers are starting to test artificial intelligence and data robots to help with loan surveillance such as processing financial submissions and inspections. These solutions are very efficient in converting analog information to digital format as our industry still has not embraced data standards and pushes lots of paper and electronic information back and forth for humans to process.
- Technology should help process information faster and lead to new loan surveillance tools. Servicing jobs locally will become more valuable as data analysts replace data processors.
Cybersecurity and Fraud
- Our industry is being specifically targeted by very sophisticated scammers that try to impersonate the lender and intermediary. All parties including sponsors/borrower need to be very aware and follow industry best practices to verbally confirm ACH and wire instructions and be very careful about clicking fake links that will compromise an e-mail account. Particular attention should be paid to any changes in payment instructions midway through a transaction.
- E-mail is not a secure way to communicate sensitive information and should be encrypted. Most large firms now require MFA (Multi-factor Authentication).
- Originators, lenders, and servicers are increasingly looking for other technology solutions outside of e-mail to handle sensitive documents with multi-factor authentication tools to verify individual parties.