Everyone feels the negative brunt of non-performing assets, not just the lenders. Non-performing mortgages limit lenders borrowing power by up to 900% in many cases. 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. 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.)
There aren’t many solutions for banks when it comes to easing the negative impact non-performing assets have on their accounts. The option of foreclosure is always the last resort. The high price lenders incur with this process start with the hefty legal expenses. While the property is still REO (Real Estate Owned), it requires extensive property management. There is the concern that damage to REO properties, while they sit vacant, increases and further hurts the chances of any real profits. 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. 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. On top of this is the crisis the United States faces among the larger lending services who have few if any capable REO experts who can handle bulk REO’s as well as possess the ability to successfully manage and protect them al the while selling them at a 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.
Post a Comment