Why Have Banks Decided to Allow the sale of Non-Performing Mortgage Notes and Bulk REO Property?
The ill effects of non-performing assets are not just felt by the lenders but the entire economy is negatively impacted by them. Defaulted mortgage loans mean that a lender might be hindered in its ability to borrow by around 900%. 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. Plus, as defaulted assets lose value banks are forced to write down the lower value and bear the loss.
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Lenders hands are all but tied when trying to solve the blow non-performing assets place on them. 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
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. The last time anyone saw a lending crisis of this magnitude was almost 15 years ago, and not since then have the valuable number of REO experts been lost at such perplexing numbers. 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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