Why Lenders Sell Bulk REO and Non-Performing Mortgage Notes

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Why Lenders Sell Bulk REO and Non-Performing Mortgage Notes

Wednesday, May 13th, 2009 Subscribe To Our Feed

When a property is not yielding income it has dire consequences for the lenders and the general economy as well. Non-performing mortgage assets could cripple lenders abilities to borrow by just under 1000%. 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. As a property loses its value, the only option banks have is to record the adjusted value and take the 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. 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 amplified danger to REO properties as they sit empty only raises the chanses that its assets will lose even more value. It should also be noted that with the selling of real estate also comes transaction fees and marketing expenses.

Furthermore, lenders mus face the problem of staffing. Even if lenders have exhausted all other options, if it decides to foreclose it must employee enough people to manage the properties and unload sometimes numerous REO’s. For 15 years we have been expempt from this kind of lending crisis which has included depleting lending staffs with REO knowledge at detrimental levels. 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.

As quickly as humanly possible today’s lenders, bond managers and servicing agencies appear to be charting the same course: Get rid of those unstable loans even if it means selling at a loss.

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