Reasons Lenders Sell Non-Performing Mortgage Notes and Bulk REO’s
Defaulted mortgages create a backlash whose effects are felt by not only the lenders, but the economy as a whole suffers as well. Defaulted mortgage loans mean that a lender might be hindered in its ability to borrow by around 900%. Lenders can be blocked from borrowing up to $900,000 on a defaulted loan of just $100,000, that is, until the property is divested. Additionally, as a property loses value, the lenders must adjust the numbers and eat the loss.
(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. This process includes expensive steps for the lenders that start with high legal fees. REO (Real Estate Owned) properties also incur pervasive property management headaches until they are unloaded. The proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value. Last but not least, there is the marketing and transaction expenses that go hand in hand with selling real estate of any kind.
Another problem that lenders 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.
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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Tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults
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