What Is a Master Servicer?

A master servicer is a financial entity responsible for managing the loans pooled in a commercial mortgage-backed security (CMBS). Typically the process of creating a CMBS involves transferring loans from the primary servicer who originated the loan to a master servicer. Borrowers will interact with the servicer throughout the life of their loans, unless they default, in which case the master servicer will transfer their loans to a different department for collection action.

Master servicers have a number of responsibilities. The first is maintenance of accurate and complete records on all the loans. This includes updated contact information for borrowers, loan amounts, interest, and a history on each borrower's repayment behavior. This information is necessary to administer the pool of loans, and it also becomes important in the generation of reports on pool performance, another task for the master servicer.

Accurate records are a very important part of the responsibilities at a master servicer. Regulators can ask to inspect records to see if they are current and to check for any signs of fraud or other issues. Investors also have a right to see records and to request periodic reports. Borrowers can contact the servicer to request proof of ownership and other documentation, and this can become an issue if a dispute over a mortgage goes to court. If the servicer loses the document assigning the debt to it, for example, the borrower may be able to argue that demands for payment are not legal.

This entity is also responsible for communications with borrowers. Borrowers submit payments to it and can contact the master servicer for questions about repayment, requests for forbearance plans, and other issues. This contact includes mailing disclosure statements so borrowers are familiar with their rights and responsibilities under the loan agreement. In the event a borrower goes into default, the master servicer initiates warnings and has the power to transfer nonperforming loans to a special servicer who focuses solely on such loans to bring them into compliance.

Numerous financial institutions act as master servicers and provide services to a range of investors and financial institutions. The staff includes administrators, accountants, and representatives who can interact directly with borrowers if they have concerns. Financial institutions and investors in search of a master servicer can compare rates and benefits between companies that offer this service to determine which would be most suitable for their needs. It can be advisable to request quotes from several places to find out more about the going rates in the industry.