Commercial mortgage servicers had a party in the 1980s and a hangover that lasted until 1992. Now, to the relief of many, things seem to have stabilized. The worst of the problem loans originated in the 1980s are healed or off the books, industry insiders say, and the volume of new mortgages increased last year as many apartment and commercial developers sought to refinance mortgages.

Perhaps best of all for the industry is the bright future that some see for servicing commercial mortgages that have been securitized by Wall Street.

'A Lot of Lessons'

Top executives at the firms that service commercial mortgages paint a picture of an emerging and evolving industry.

"A lot of lessons have been learned," said David E. Creamer, executive vice president at GMAC Mortgage, the mortgage lending and servicing arm of General Motors. "It's kind of like the single-family lending business 10 or 15 years ago."

The American Banker's ranking of the top servicers of commercial mortgages appears on page 14A.

As the business changes, companies that process payments on commercial and multifamily developments are trying to keep pace.

Take Dorman & Wilson, White Plains, N.Y. With a portfolio of $11 billion, the unit of Legg Mason Inc., is far and away the top commercial servicer in the country. But even this firm is finding that it must change it ways.

For many years, the bread and butter of a firm like Dorman & Wilson has been servicing mortgages for big investors, such as insurance companies or pension funds as well as servicing multifamily projects sponsored by Freddie Mac or other government affiliated agencies.

Upbeat on Securitization

But now, like many in the industry, Dorman & Wilson is expanding its work servicing mortgages that underlie securities structured and sold by Wall Street, according to Ronald Poe, the company's president.

"We arc optimistic about securitization and last year was extremely positive after four long years," Mr. Poe said.

USGI Inc., a Connecticut firm, is the second-largest servicer of commercial mortgages. It concentrates on multifamily projects and handles payments on some $6.2 billion of laons.

Republic Realty Mortgage Corp., Chicago, Metmor Financial, Overland Park, Kan., and GMAC Mortgage Co., round out the top five.

GMAC Mortgage, the only big residential player among the top five commercial servicers, has high hopes for the industry.

Influence of Refis

Last year, according to Mr. Creamer, refinance activity picked up substantially. That's important because commercial loan servicers make much of their profits from fees paid for originating loans, more than the money made by the yearly fee for handling payments.

Since almost all commercial mortgages have substantial prepayment penalties, last year's drop in interest rates didn't set of a rash of refinancings, according to Mr. Creamer.

Many of the loans last year were for projects that had bullet-payment mortgages coming due, he said. Because of the poor performance of many loans originated in the late 1980s, those credits as a crass have been prevented from refinancing, a situation that is only now changing.

The outlook for new construction business is also bright, according to Glenn Wilson, president of Knutson Mortgage Corp., the 13th-ranked servicer.

"Today there is a significant amount of action," he said. "For the first time in a while, you can go into Omaha and Des Moines and its unbelievable the amount of construction happening."

Concern About Margins

There are some issues that trouble industry participants, however - namely profit margins.

"We haven't had a raise in 20 years," said Larry Melody, chairman of L.J. Melody & Co., the eighth-ranked commercial servicer, noting that the fees for servicing commercial loans have stayed the same. He adds that profits margins have shrunk by as much as a third in that period.

That's because lenders, having been through tough times recently, are asking ever more from servicers, he said. And when loans get into trouble, servicing costs rise rapidly.

"When you get a problem you need a certified public accountant at $50 an hour, not just a clerk," said Mr. Melody.

Although the size of the loans being serviced is rising, on average, economies of scale are more difficult to obtain than in single family mortgage servicing, executive say. "To compare it with single-family servicers we are still mostly working with ballpoint pens."

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