| These non-performing assets are creating tremendous | | | | selling any property. |
| detrimental effects to the lenders, and ultimately the | | | | A more discreet problem facing lenders is staffing. |
| entire economy. The non-performing mortgage could | | | | Even if a lender believes foreclosure to be the most |
| impact the bank's ability to borrow by roughly 900%. If | | | | viable option, it typically does not have the staff to |
| $100,000 is in default, the bank is prohibited from | | | | manage and dispose of REO's, especially mass |
| borrowing up to $900,000 until the asset is divested. In | | | | quantities of REO's. The last major lending crisis |
| addition, as an asset loses value, the banks must write | | | | occurred approximately 15 years ago, and lending |
| down the value and take a loss. | | | | staffs have been depleted of REO expertise at the |
| Lenders face limited solutions to alleviate the impact of | | | | execution level. Moreover, there are few, if any, large |
| the non-performing assets on their books. The venue | | | | lender-servicing companies in the United States with |
| of last resort for the lender is foreclosure. This is a | | | | current in-house capability of handling a large portfolio |
| costly process for the lender that begins with heavy | | | | of REO properties, managing them, providing security |
| legal expenses. It also results in extensive property | | | | for the properties and disposing of them with minimal |
| management while the asset is an REO (Real Estate | | | | loss. |
| Owned). There is increased risk of damage with REO | | | | Presently, the course of lenders, servicing agencies |
| properties while they sit vacant; increasing the risk of | | | | and bond managers appears clear: Sell troubled loans |
| devaluing the asset further. Finally, there are the | | | | at a steep discount as quickly as possible. |
| marketing and transaction expenses that come with | | | | |