OLYMPIA, Washington – State chartered credit unions have up to five years to dispose of property obtained through foreclosure, so-called other real estate owned, or OREO, under new rules approved by state regulators.
The new rules adopted by the Department of Financial Institutions state that OREO must be disposed of as soon as prudent business judgment dictates, “and in no case longer than five years.” “The longer real estate is held, the more speculative an investment it becomes,” said the DFI. The director of the DFI’s CU Division may grant waivers of the holding period upon application.
The new rules were adopted because of the increase in OREO holdings by state chartered credit unions as a result of the economic downturn.
The new rules state that the DFI may require a credit union to record charge-offs or to hold special reserves for OREO property when necessary.
The rules also require independent written appraisals or determination of fair value and update them periodically. The credit union must also engage in “diligent” marketing, including having a written marketing plan to reflect changed market conditions.
The credit union must also have a board-approved plan to manage any OREO that ssures that the board is regularly informed of the status of such property. In most cases, this may require the creation of a special assets committee, or some combination of executive staff, to oversee OREO management.
