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The ill effects of non-performing assets are not just felt by the lenders but the entire economy is negatively impacted by them.  A bank’s ability to borrow is negatively effected by around 900% when a mortgage defaults.  Lenders can be blocked from borrowing up to $900,000 on a defaulted loan of just $100,000, that is, until the property is divested.  Additionally, as a property loses value, the lenders must adjust the numbers and eat the loss.

(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.  This process includes expensive steps for the lenders that start with high legal fees.  The outcome is pervasisve property management while it continues as REO (Real Estate Owned) property.  REO properties increase the chance for liability every minute they sit unoccupied, amplifying the risk that the asset will further nose dive.  Lastly, there are business dealings, complete with incurred expenses that encompass transferring said properties.

Staffing is yet another issue lenders face.  If foreclosure appears to be the only option left, banks often don’t have the manpower to oversee and divest REO’s, especially bulk REO’s.  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.  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.

Currently all of the servicing agencies, course lenders and bond managers have only one thing in mind: Sell every loan that is in distress for the largest discount allowed.

Once again, an excellent solution to this debacle appears to be effective Bulk REO Investing.

When a property is not yielding income it has dire consequences for the lenders and the general economy as well.  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.  Plus, as defaulted assets lose value banks are forced to write down the lower value and bear the loss.

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

There are few solutions available to lenders that relieve the brunt non-performing assets put on their registers.  Only as a last resort will banks foreclose.  These actions are pricey for lenders and start with exhorbitant legal expenses.  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.  There are also the expenses of selling any real estate holdings that include transaction expenses and marketing.

An even bigger problem banks face is staffing.  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 a major lending crisis of this proportion took place was about 15 years ago when REO experts among the lending staffs were let go, much to the detriment of banks and buyers alike.  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.

Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.