Topic: Other Real Estate Owned (OREO)
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What amounts should we report to the credit bureaus for foreclosed customers whose properties we now own? Specifically, after we foreclose on a property and add it to our other real estate owned (OREO) assets, should we add interest, appraisal fees, property taxes, insurance, legal fees, and other property maintenance fees that have accrued to the balance that we report to the credit bureaus?
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We do not believe that amounts that accrue after a foreclosure sale has been confirmed and the bank has taken possession of the property should be added to the consumer’s balance or reported to the credit bureaus. Unless your mortgage or loan agreement state otherwise, we believe your bank is responsible for the carrying costs…
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We have two other real estate owned (OREO) properties, each of which has a book carrying value over $100,000. Are we required to obtain annual valuations for these properties? Do the annual valuations have to be appraisals?
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We are not aware of a requirement in Illinois law to obtain annual or periodic appraisals of OREO properties. Instead, we believe your bank is subject to the more flexible OREO standards established by your primary federal regulator, the FDIC, which mandates that banks obtain “appraisals or valuations as required to ensure assets are reported …
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Over a year ago, we made an installment loan contract on other real estate owned (OREO) property owned by our bank. The borrowers now are eligible to obtain a new residential loan with us and pay off the contract. The title to the property currently is in our bank’s name. We are selling the loan to Fannie Mae, which is treating it as a refinancing transaction. For purposes of the TRID disclosures, should we treat this as a refinancing or a purchase?
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We believe that your bank should identify the loan purpose on the TILA-RESPA Integrated Disclosure (TRID) forms as a refinancing. The TRID rules require lenders to identify one of four possible loan purposes in the Loan Estimate: (1) purchase, (2) refinance, (3) construction, or (4) home equity. A purchase loan is one made to finance the…
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We would like to finance the sale of an OREO property to a buyer who cannot provide the required down payment to satisfy the initial investment required by the OREO accounting rules (10% in this case). Can the buyer satisfy the initial investment requirement by providing another property as collateral, or by making substantial improvements valued over 10%? What if we were to provide a bridge loan to the buyer for improvements before selling the property to the borrower? Our FDIC examiners are telling us that these approaches are acceptable for the full accrual accounting method, but our accounting firm disagrees.
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We cannot provide guidance on whether any of these approaches would satisfy the criteria for full accrual accounting, and we recommend following the advice of your accounting firm. To ensure that you are on the same page with your FDIC examiners, we recommend reviewing the FFIEC Call Report Instructions and the relevant FASB Accounting Standards. …
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One of our subsidiaries has been holding title to OREO property for almost five years. Do we need further approval to hold the property for more than five years?
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No, you do not need to obtain approval to hold the property for over five years, because Illinois law now permits banks to hold other real estate owned (OREO) properties for ten years. The Illinois Banking Act was amended in 1997 to extend the holding period from five years to ten years — although that…