Stephanie Petosa has an unusual job. That is, she rates the loan servicing companies, such as Capmark Finance, who service the loans that are pooled into commercial mortgage-backed securities (CMBS). The Fitch Ratings managing director evaluates the servicers in terms of how well equipped they are for their roles, taking into account factors such as their financial strength, technology, staffing and training, and processes and controls.

Loan servicers, whose behind-the-scenes work is mostly off the radar of investors, have a larger role to play in difficult environments as the assets they service run into troubled waters. In fact, New York-based Fitch's forecast calls for delinquencies on CMBS to rise to about 2% by the end of 2009, from about 0.64% at the end of November.

Petosa has been rating servicers for Fitch since 1998, when she was approached by the firm while working in investor relations with GE Capital. She also has worked in consumer products marketing with Pepsi and Ralston Purina. NREI talked with Petosa recently about the global credit meltdown and its implications for servicers.

NREI: How is the credit crisis impacting commercial mortgage servicing?

Petosa: The credit crisis puts pressure on servicers financially and pressure on the assets they are trying to service. This is the first year [2008] of a significant amount of maturities. In the beginning of the year those maturities were getting refinanced. Starting in mid-September, they started to dry up significantly. So that's going to be putting pressure on servicers and the assets they service. There's just general uncertainty in the market. It will also be felt by servicers that aren't being directly affected by financial stress or the stress of a merger or consolidation.

NREI: Do you expect more borrowers to ask for modified loan terms?

Petosa: I think borrowers that are in real stress will be asking for some kind of modifications to their loan terms. Borrowers in some of the particular sectors that are going to be impacted by consumer stress, such as hospitality and retail, might be more likely to ask for some sort of modifications. As we are coming into some of the maturities that they're having trouble refinancing, they would likely ask for an extension. That is a form of modification, but not necessarily any kind of reduction in rate or forgiveness of principal.

NREI: Loans have gone into different CMBS tranches in different transactions. What sort of problems does that create in working out loans?

Petosa: I think anytime you have more than one decision maker in the process, that process becomes more complicated. The majority of the transactions contemplate a lead special servicer, so should there be a problem, it is anticipated that there would be one of the special servicers that would be more the overriding decision maker. Unfortunately, or fortunately, I don't think we have seen one of these large complicated loans actually make it into special servicing.

Going forward in this environment, workouts have to be a little bit more creative. I think they are going to take more time just because of the lack of capital in the market. I think the processes and procedures the servicers are having to put together to work out loans in this environment are also going to be precedent-setting.