Fitch: U.S. CMBS Servicers' Response to Mother Nature.

NEW YORK -- The hurricane season is once again upon us. In light of the extensive destruction caused by several storms in 2005 and the potential impact such events may have on CMBS bonds, Fitch Ratings wanted to share with the market the steps servicers and Fitch take in response to natural disasters. Fitch collected and reviewed its rated servicers' procedures for surveillance and asset management response to disasters such as hurricanes, floods, and earthquakes. This report presents a summary of best practices utilized by servicers to identify potential exposure and risk, communicate with external parties, protect the interest of the certificateholders, and provide quality customer service to borrowers.

Within the first 24 hours of a natural disaster:

CMBS servicers monitor information websites such as FEMA (Federal Emergency Management Agency), www.fema.gov, and NOAA (National Oceanic & Atmospheric Administration), www.noaa.gov, to identify areas impacted by the event. Once the areas of concern have been identified, typically by zip code, the servicer uses this information to extract the potentially affected assets from the servicer's loan database. The servicer then generates a report to analyze and determine portfolio and deal level exposure and may use mapping technology to identify concentration of properties within each affected zip code.

Within three days of the disaster:

The servicer attempts to contact borrowers and property managers of potentially impacted loans in order to determine:

--Condition of the property and surrounding areas;

--Potential effect damage may have on operations;

--Borrower's intent to file insurance claim;

--Occupancy of the property;

--Initial plan for recovery;

--Estimated time/cost for repairs.

The size and magnitude of the disaster directly impacts the servicer's ability to contact the appropriate parties to obtain answers to the above questions. Telephone communication and physical access to the properties may be compromised, making it impossible for the servicer to contact the borrower immediately following the event.

Once the borrowers have been contacted:

Information is then populated into the servicing system. After the initial damage is assessed and recorded, assets of concern are placed on the watch list in accordance with the servicer's policies and procedures. The servicer then schedules property inspections as deemed appropriate.

Concurrently, the servicer's insurance team begins the review of each property's insurance coverage, specifically examining the following provisions:

--Property/Casualty;

--Loss of Rents/Business Interruption;

--Lender Loss Payee.

The servicer works with the borrowers to properly and expeditiously file claims with insurance carriers. Insurance proceeds that are delivered directly to the servicer are monitored and distributed as per the requirements of the loan documents.

As part of ongoing reporting and surveillance efforts:

The servicer's investor reporting team is responsible for keeping investors, rating agencies, and trustees informed of their portfolio exposure including individual loan status, damage and repair estimates, and the potential for losses. The servicer's investor website is updated regularly with new information as it is received.

The master servicer coordinates sharing information with the special servicer and provides the results of its due diligence. The special servicer, through a network of local brokers and inspectors, is often able to provide additional color on the affected areas and assets. The master servicer reviews PSAs (Pooling and Servicing Agreement) to determine whether any of the affected loans should be transferred to the special servicer.

As part of the on-going surveillance process, the servicer conducts weekly meetings comprised of asset managers, portfolio managers, and insurance specialists to review and update the status of each impacted loan. The servicer's watch list provides up to date comments regarding each affected property.

Fitch's Role:

In the wake of a natural disaster, Fitch's servicing group, in conjunction with its performance analytics team, requests information from master servicers to determine exposure at the deal level. Fitch's Performance Analytics group also immediately identifies transactions with high geographic concentrations in the effected area using its internal database. Transactions with limited or no credit support to Fitch rated classes may be identified by a press release or placed on Rating Watch. The use of Rating Watch allows Fitch to communicate potential rating actions to investors while allowing master servicers time to contact borrowers, assess property condition, and determine if adequate insurance coverage is in place. During this time Fitch's performance analytics group maintains regular contact with servicers while this information is gathered and takes the appropriate rating action promptly when warranted.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.