How Banks Rationalize the Sale of Non-Performing Mortgages ans Bulk REO Properties
Everyone feels the negative brunt of non-performing assets, not just the lenders. Defaulted mortgage loans mean that a lender might be hindered in its ability to borrow by around 900%. If the property in question is defaulted on, leaving $100,000 owed, the mortgage lender is hindered from borrowing up to $900,000 until the property is unloaded. Not to mention that, as an asset goes down in market price, the banks are forced to adjust the numbers accordingly and eat the deficit.
(A quick note from the editor: For related information, check out Bulk REO Investing.)
Lenders hands are all but tied when trying to solve the blow non-performing assets place on them. Only as a last resort will banks foreclose. The high price lenders incur with this process start with the hefty 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.
Furthermore, lenders mus face the problem of staffing. 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. For 15 years we have been expempt from this kind of lending crisis which has included depleting lending staffs with REO knowledge at detrimental levels. 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.
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