DBRS Releases Methodology for Commercial Mortgage Servicer Evaluations

DBRS has today released its Commercial Mortgage Servicer Evaluations methodology report, a methodology that is part of DBRS’s continuing efforts to increase the transparency of its commercial mortgage-backed securities (CMBS) evaluation process. This approach was developed based on DBRS’s global methodology for servicer evaluations in structured finance transactions as discussed in “DBRS Structured Finance Servicer Evaluations,” published on October 22, 2007, and replaces “Servicer Rating Approach” published in July 2004.

The primary change from the 2004 methodology is that all eight areas of evaluation have been made determining factors, with greater emphasis placed on financial strength and technology (previously, general and beneficial factors, respectively). Within challenged and transitioned markets, a portfolio serviced by a servicer without adequate financial capacity to staff its portfolio will be subject to neglect. When and if that servicer sells or transfers its portfolio, the information on the loans is often found to be in less than pristine condition, thereby reducing the transparency of the performance of the loans and often masking potential problems. In addition to financial strength, technology is an area where servicers will gain efficiencies in a challenged market and be prone to less human error in the process.

When rating a structured finance transaction, the capacity of the servicer is a key analytical consideration, because servicing quality affects the performance of the trust assets from a delinquency, default and recovery perspective and, consequently, affects the ultimate repayment of rated securities. Due to the importance of the servicing role, DBRS performs on-site reviews to gain a full understanding of a company’s operational capabilities from a servicing perspective. DBRS provides servicer evaluations and publishes the results of the evaluations on our website. The results are categorized as Superior, Good, Adequate and Weak.

The methodology providing DBRS’s processes and criteria is available by contacting us at info@dbrs.com.