These non-performing assets are creating tremendous detrimental effects to the lenders, and ultimately the entire economy. The non-performing mortgage could impact the bank’s ability to borrow by roughly 900%. If $100,000 is in default, the bank is prohibited from borrowing up to $900,000 until the asset is divested. In addition, as an asset loses value, the banks must write down the value and take a loss.

Lenders face limited solutions to alleviate the impact of the non-performing assets on their books. The venue of last resort for the lender is foreclosure. This is a costly process for the lender that begins with heavy legal expenses. It also results in extensive property management while the asset is an REO (Real Estate Owned). There is increased risk of damage with REO properties while they sit vacant; increasing the risk of devaluing the asset further. Finally, there are the marketing and transaction expenses that come with selling any property.

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Posted by Carlos Sagastume on August 1, 2008. Filed under HUD Homes. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.