Home loan collectors in the United States have embarked on a wave of hiring to deal with a deluge of defaults and prepare for lenders to take control of stores and hotels – an omen alarming for owners of billions of dollars in property. commercial mortgage-backed securities.
When the home loans that have been bundled into these bonds are under severe stress, they are passed on to so-called special services, which work with borrowers to find a way to get them to pay off their mortgage or to possibly seize the property and get it back money for bondholders.
“It’s a naturally countercyclical business,” said Alex Killick, head of special services at CW Capital, who joined JPMorgan Chase in early 2008.
CW Capital, responsible for just under $ 34 billion in commercial mortgages according to data from Wells Fargo, says it has increased the number of employees working on distressed loans by nearly 30%, bringing the total workforce of the company to more than 100 people. Almost $ 4 billion in loans have been transferred to its hands since the start of the pandemic.
Midland Loan Services – part of the PNC financial services group and one of the nation’s largest specialties, named on nearly $ 100 billion in CMBS transactions – has increased its staff to double digits. The value of loans on its books has grown from $ 1.4 billion in February to nearly $ 9 billion this month.
The dramatic rise in unpaid mortgage loans has already led to $ 54 billion in loans transferred to special services in recent months, or more than 10% of the CMBS market tracked by data company Trepp.
LNR Partners, the special service arm of Starwood Property Trust – which invests in some of the riskiest tranches of CMBS deals – has reassigned staff from investing in new deals to handling troubled deals.
“We have significantly increased the resources available for special services,” said Adam Behlman, president and chief investment officer of the investment and real estate services division of Starwood Property Trust. “We’ve moved a lot of people into the asset management business from loan and hired outside. “
Each of the special agents said foreclosing the properties they were responsible for was a last resort. But the longer the mortgages have gone unpaid, the more important it will become. Trepp estimates that 12% of all CMBS loans will be foreclosed due to the coronavirus crisis. Bondholders expect losses: in August, asset manager Pimco warned against “severe painTo come for the sector.
The Palmer House, managed by Hilton in Chicago, America’s oldest continuously operating hotel, is the only loan backing a 2018 CMBS deal. The hotel was revalued to $ 305.5 million last month, from $ 560 million and less than the $ 330 million mortgage on the property. Foreclosure proceedings have started.
Sometimes proceedings get started early because of how long it can take, with different rules governing each state in the United States and some regions imposing moratoriums on foreclosures.
A cluster of 48 hotel properties in 21 states that secured a $ 780 million mortgage for Colony Capital from Tom Barrack are going into foreclosure after a loan modification agreement could not be reached, the documents show.
Initiating foreclosure proceedings is sometimes seen as a tactic to pressure borrowers to resume mortgage payments for fear of losing the property altogether.
“We are faced with a choice, are you dragging this through the crisis and see where we are at, which is not a good outcome for bondholders? Mr. Killick said.
“On the other hand, rushing into foreclosure can put the lender in the position of having to finance the expenses of the property. There’s no rush to grab it, but we also don’t want to create a huge pile of zombie loans that, as we move into next year, still won’t pay off.