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Why Mortgage Companies Offer Non-Performing Mortgage Notes and Bulk REO’s
By plrprousers | May 31, 2009
Everyone feels the negative brunt of non-performing assets, not just the lenders. A bank’s ability to borrow is negatively effected by around 900% when a mortgage defaults. 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. 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. High legal expenses are the beginning of this costly process that lenders face. The outcome is pervasisve property management while it continues as REO (Real Estate Owned) property. The proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value. Lastly, there are business dealings, complete with incurred expenses that encompass transferring said properties.
Staffing is yet another issue lenders face. 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. Since about 1994 there hasn’t been this kind of lending crisis in which REO experts have been axed at jaw dropping proportions. 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.
Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.
Tags:bulk reo,bulk reo investing,defaulted mortgages,foreclosure investing,foreclosures,mortgage defaultsRelated posts
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