The Reason Banks Made the Decision to Sell Non-Performing Mortgage Notes and Bulk REO’s
When a property is not yielding income it has dire consequences for the lenders and the general economy as well. Defaulted mortgage loans mean that a lender might be hindered in its ability to borrow by around 900%. 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. Additionally, as a property loses value, the lenders must adjust the numbers and eat the loss.
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Banks have few options that buffer the burden placed on their books by non-performing assets. Foreclosure is almost always the last action banks take. These actions are pricey for lenders and start with exhorbitant legal expenses. 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.
Another problem that lenders face is staffing. If foreclosure appears to be the only option left, banks often don’t have the manpower to oversee and divest REO’s, especially bulk REO’s. The last time a major lending crisis of this proportion took place was about 15 years ago when REO experts among the lending staffs were let go, much to the detriment of banks and buyers alike. Also, the larger lenders in the United States are hard pressed to come up with current in-house experts who can manage bulk REO’s or provide the proper management or security for them while preparing to sell them without incurring too great a loss.
Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.
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