Understanding the Reasoning Behind Banks Decisions to Sell Non-Performing Mortgages and Bulk REO’s
Written by ady on July 11, 2009 – 9:48 pm -If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!
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. Let’s say the defaulted amount of the asset is just %100,000 - in that case the bank is blocked from borrowing up to $900,000 until the property is assumed by someone else. As a property loses its value, the only option banks have is to record the adjusted value and take the 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. Lenders won’t foreclose unless all other options have been depleted. 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. REO properties increase the chance for liability every minute they sit unoccupied, amplifying the risk that the asset will further nose dive. There are also the expenses of selling any real estate holdings that include transaction expenses and marketing.
Another problem that lenders 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. 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.
Tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, Foreclosures, mortgage defaults
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