Why Non-Performing Mortgage Notes and Bulk REO’s Are Being Sold by Banks
Everyone feels the negative brunt of non-performing assets, not just the lenders. Non-performing mortgages limit lenders borrowing power by up to 900% in many cases. For instance, if a loan of $100,000 is in default, the lender is forbidden from borrowing up to $900,000 until the property is dumped. Also, as the defaulted asset loses value the lenders must record the adjusted value, thereby taking a great financial hit.
(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. Foreclosure is almost always the last action banks take. High legal expenses are the beginning of this costly process that lenders face. REO (Real Estate Owned) properties also incur pervasive property management headaches until they are unloaded. There is the concern that damage to REO properties, while they sit vacant, increases and further hurts the chances of any real profits. When selling any property there are expenses - from marketing to transactions that accompany selling real estate.
An even bigger problem banks face is staffing. Still, if a mortgage lender thinks foreclosure is teh only reasonable option, it is faced with the daunting task of finding enough staff to oversee and unload REO’s, especially bulk REO’s. 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, the United States has few in-house experts at any of the larger lending institutions who can handle bulk REO’s which need someone to manage them, secure them and sell them with 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.
