OCC finalized a rule to clarify and streamline the regulation on other real estate owned (OREO) for national banks and to update the regulatory framework for OREO activities at Federal savings associations. OCC is also removing outdated capital rules for national banks and Federal savings associations, including provisions related to OREO, and is making conforming edits to the other rules that reference those capital rules. This final rule will apply to OREO activities at all national banks and federal savings associations and will be effective from December 01, 2019.
OREO refers to real estate acquired in satisfaction of debts previously contracted and real estate no longer used or planned to be used to conduct banking activities. Post consultation, OCC is making minor adjustments to the proposed technical amendments related to the capital rules. Specifically, OCC is removing Appendices A and B to risk-based capital guidelines for national banks (12 CFR, Part 3) and capital requirements for Federal savings associations (12 CFR, Part 167) and making conforming technical edits to other CFR parts that reference those provisions.
Additionally, the holding period for national banks under the final rule remains unchanged and consists of an initial five-year holding period, with up to an additional five years if approved by OCC. The final rule also establishes an initial holding period for Federal savings associations of five years after commencement of the holding period to ensure the safe and sound management of OREO holdings. If the Federal savings association has not disposed of the OREO within the initial five-year holding period, the savings association may request OCC approval to continue to hold the real property as OREO for up to five additional years. These provisions are consistent with the rules that apply to national banks. The final rule also adopts for Federal savings associations the existing national bank provision describing the date the holding period for OREO begins.
Finally, the final rule updates and streamlines the notification provision by requiring prior notification only when the proposed additional expenditures and recorded investment in an individual OREO property exceeds 10% of the institution's total equity capital based on its most recent Call Report. National banks with significant loan-loss reserves or excessive losses recorded in accumulated other comprehensive income will generally have a reduced limit for notification. National banks holding assets that are deducted under the regulatory capital rule will generally have an increase in limit for notification under the final rule. OCC expects a similar result for Federal savings associations that previously used a notification framework based on lending limits.
Related Link: Federal Register Notice
Effective Date: December 01, 2019
Keywords: Americas, US, Banking, OREO, Real Estate, Credit Risk, Regulatory Capital, Federal Savings Association, OCC
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