The number of U.S. commercial mortgage-backed securities (CMBS) servicers will continue to thin out this year, according to New York-based Fitch Ratings. Faced with a very competitive market, servicers are being pressured to either grow portfolios or evaluate remaining in a low profit-margin business. As a result, the industry will see growing consolidation among servicers, the rating agency predicts.
"Large servicers partially satisfy the need for portfolio growth through purchasing or partnering with other, usually smaller servicers," says Richard Carlson, director in the CMBS group at Fitch Ratings. "Other servicers have decided to exit certain types of servicing, or the business altogether, and sell their servicing rights to the highest bidder."
Fitch also predicts that servicers will continue to explore outsourcing options this year. By reducing staff levels through outsourcing, servicers can lower the cost of servicing a loan. With these benefits, however, come certain operational risks, among them the introduction of an outside entity into the servicer/borrower relationship and the lack of familiarity with a task performed by the vendor.