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.
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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.
Tags: bulk reo, bulk reo investing, defaulted mortgages, foreclosure investing, foreclosures, mortgage defaults