For the first time in years, CREFC has proposed an increase in data disclosure by proposing a new report, the Loan Modification Report, to be effective Dec. 1, 2010. It isn’t perfect, but it is progress.
This report is designed for Special Servicers to use when they modify a loan. CMBS Investors have demanded this information because loan modifications have a direct impact on the bond payments and, therefore, the value of the bond. Despite the fact that modifications are fairly common these days, Special Servicers have not been doing a good job reporting the new terms. The current deficiency in reporting these modifications has grown into a major problem.
The new report will hopefully help solve that problem because it will require Special Servicers to disclose the terms of the modifications.
Check out the exposure draft: CRE Finance Council INVESTOR REPORTING PACKAGE Version 5.1
The Loan Modification Template is on Page 102.
My only negative comment regards the format of the report. Instead of a data-driven report in XML or even Excel, they picked PDF. Pretty much the worst format they could have picked.
But, if the special servicers actually describe the modifications in enough detail, folks who are trying to recreate the bond models can update the amortization/bond models manually to reflect modified loan terms. That is progress.
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Jim Flaherty is CEO of CMBS.com and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.