Defaulted mortgages create a backlash whose effects are felt by not only the lenders, but the economy as a whole suffers as well. A defaulted mortgage could greatly limit a bank’s borrowing ability by nearly 900%. 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. 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.)
Mortgage lenders are left with few options to ease the weight placed on the books by non-performing assets. Only as a last resort will banks foreclose. Lenders must face excessive legal fees over the course of this process. While the property is still REO (Real Estate Owned) it incurs the expense of considerable property management. The amplified danger to REO properties as they sit empty only raises the chanses that its assets will lose even more value. When selling any property there are expenses – from marketing to transactions that accompany selling real estate.
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 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.
Today most lenders, bond managers and servicing agencies seem to have one goal: Unload shaky loans for pennies on the dollar ASAP.
Once again, an excellent solution to this debacle appears to be effective Bulk REO Investing.
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