The impact felt by non-performing assets are detrimental to the economy and mortgage lenders alike.  Non-performing mortgage assets could cripple lenders abilities to borrow by just under 1000%.  Even if the amount in default is only $100,000, the impact on the bank is that it is forbidden to borrow up to $900,000 until the property is sold.  Not to mention that, as an asset goes down in market price, the banks are forced to adjust the numbers accordingly and eat the deficit.

(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 proliferated risk of harm being done to REO properties while they sit empty only increases the chances it will further lose value.  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.  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.

Nowadays the progression of most bond managers, lenders and servicing agencies seems to be this: Shake off troubled loans at ridiculously low prices just as fast as possible.