The Reasoning Lenders Use for Unloading Non-Performing Mortgage Notes as Well as Bulk REO Properties

The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike. A defaulted mortgage could greatly limit a bank's borrowing ability by nearly 900%. If the property in question is defaulted on, leaving $100,000 owed, the mortgage lender is hindered from borrowing up to $900,000 until the property is unloaded. 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.)

Lenders hands are all but tied when trying to solve the blow non-performing assets place on them. Lenders will exhaust all other avenues before resorting to foreclosure. The high price lenders incur with this process start with the hefty legal expenses. REO (Real Estate Owned) properties also incur pervasive property management headaches until they are unloaded. There is the concern that damage to REO properties, while they sit vacant, increases and further hurts the chances of any real profits. Lastly, there are business dealings, complete with incurred expenses that encompass transferring said properties.

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. Not to mention the fact that the US has few experts capable of handling bulk REO's while juggling the task of managing them, protecting them and divesting them with a low margin of 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.