Why Do Banks Sell Their Notes?

The primary reason that banks sell bad notes is to mitigate any risk that implicates the bank. Selling distressed paper takes the weight off of their shoulders, improves their investor relations and alleviates an aspect of unpredictability. Banks are most definitely not in the business of real estate management, nor do they wish to be.

Bottom line, selling notes is vital to the successful operation of a bank. The overhead costs of surveying and maintaining properties is too costly and not beneficial for them while regulations by the federal government drive foreclosure costs sky high for the bank.

For a deeper understanding of why banks sell their notes, check out this short video clip!

Video Notes:

  • Banks are required by law to hold at least seven dollars for every defaulted dollar in cash reserves.
  • The goal is to sell bad paper.
  • Keeps the FDIC off of their back and cleans up their financial books.
  • Banks are not in the business of real estate management.
  • Regulations drive foreclosure costs for banks sky high.
  • Dodd-Frank regulation.
  • Banks got a massive hit when they foreclosed on properties, in order to avoid negative press they will sell.