How Banks Justify the Selling of Non-performing Mortgage Notes and Bulk REO
When a property is not yielding income it has dire consequences for the lenders and the general economy as well. Non-performing mortgage assets could cripple lenders abilities to borrow by just under 1000%. Even if the amount in default is only $100,000, the impact on the bank is that it is forbidden to borrow up to $900,000 until the property is sold. Plus, as defaulted assets lose value banks are forced to write down the lower value and bear the loss.
(A quick note from the editor: For related information, check out Bulk REO Investing.)
There are few solutions available to lenders that relieve the brunt non-performing assets put on their registers. The option of foreclosure is always the last resort. These actions are pricey for lenders and start with exhorbitant legal expenses. While the property is still REO (Real Estate Owned), it requires extensive property management. The proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value. When selling any property there are expenses – from marketing to transactions that accompany selling real estate.
Staffing is yet another issue lenders face. It matters little that a lender feels the only option is to foreclose if proper staffing can’t be put in place to manage and unload these REO properties. Since about 1994 there hasn’t been this kind of lending crisis in which REO experts have been axed at jaw dropping proportions. On top of this is the crisis the United States faces among the larger lending services who have few if any capable REO experts who can handle bulk REO’s as well as possess the ability to successfully manage and protect them al the while selling them at a minimal loss.
Without a doubt, today’s servicing agencies and mortgage companies seem to singlemindedly be in agreement to unload troubled loans as quickly as possible even if it means selling at a loss.
