Money, Cash & Finance

The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike.  Non-performing mortgage assets could cripple lenders abilities to borrow by just under 1000%.  Even if the amount in default is only $100,000, the impact on the bank is that it is forbidden to borrow up to $900,000 until the property is sold.  Not to mention that, as an asset goes down in market price, the banks are forced to adjust the numbers accordingly and eat the deficit.

(A quick note from the editor:  For related information, check out Bulk REO Investing.)

Mortgage lenders are left with few options to ease the weight placed on the books by non-performing assets.  Only as a last resort will banks foreclose.  These actions are pricey for lenders and start with exhorbitant legal expenses.  While the property is still REO (Real Estate Owned) it incurs the expense of considerable property management.  There is a higher chance that vacant REO properties will suffer damage further plummeting in value.  It should also be noted that with the selling of real estate also comes transaction fees and marketing expenses.

Staffing is yet another issue lenders face.  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.  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.

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.