Banks Incentive to Sell Non-performing Mortgage Notes and REO Properties
The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike. Defaulted mortgage loans mean that a lender might be hindered in its ability to borrow by around 900%. 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. 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.)
Banks have few options that buffer the burden placed on their books by non-performing assets. Lenders will exhaust all other avenues before resorting to foreclosure. Lenders must face excessive legal fees over the course of this process. It also generates sizable problems included with property management while the property is an REO (Real Estate Owned). The amplified danger to REO properties as they sit empty only raises the chanses that its assets will lose even more value. There are also the expenses of selling any real estate holdings that include transaction expenses and marketing.
An even bigger problem banks face is 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. It has been almost 15 years since the last major crisis in lending took place and personnel have been robbed of REO experts at staggering levels. All the more, one is hard pressed to find large lenders in the U.S. with the in-house capabilities of juggling bulk REO’s, property management, security staffing on top of unloading them without huge losses.
Currently all of the servicing agencies, course lenders and bond managers have only one thing in mind: Sell every loan that is in distress for the largest discount allowed.
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Tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults
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