Finding Regulators, 5-Year Rule Compliance
Welcome to this week’s Weekly Q & A for our Distressed Pro members. Thanks for being a member.
Let’s jump right into it:
How do I find the regulators? By finding them, they may lead me to banks that default most often.
The good news is that you don’t have to find the regulators because we’ve already found them for you.
In fact, that is what BankProspector does. We pull in all of the data from all of the banks and credit unions to display everything that they have to file and report about non-performing loans and REO, which is real estate acquired through the process of foreclosure. The regulators include the Office of the Comptroller, the FFIEC, the FDIC, and the NCUA.
You don’t need to visit any of those sites if you’re a member here because we automatically pull this information in, even before you can get it at some of the other sites. I believe I have explained this in some of the other content around the site.
In terms of who the regulators are and finding them, we do cover that in Course One, but you really don’t need to do that. That’s why we built BankProspector, which in addition to the data, also includes contacts for over 50,000 people. You don’t need to find the regulators, but if you’re looking for them, they’re the FDIC, the NCUA, the FFIEC and the Office of the Comptroller.
What happens if these banks are not compliant to the 5-year rule?
Now you might be wondering what the 5-year rule is. Let’s talk about that a little bit. Here’s a reference document to download (link is also at the bottom of the page). Rather than give you quick summaries, I want to make sure that you have access to all of the detailed information.
This PDF is from the Comptroller’s Handbook and speaks specifically to Other Real Estate Owned (OREO), shortened to REO, which is Real Estate Owned, which is property acquired through the process of foreclosure and the 5-year rule that our member is talking about here.
We’ll just do a quick search and go down to the 5-year rule. We can talk about a risk management holding period, foreclosure redemption periods, etc., reacquisition of former REO. So we’ll go down to the holding period. There are restrictions on how long a bank can hold OREO.
The holding period restrictions are generally the same for national banks and FSAs. An FSA is a federal savings association, also known as a federal savings bank, but are presented separately as the standards are based on different statutory authorities. The holding period begins on the date the ownership of the property is originally transferred to the bank, including as a result of a merger with or acquisition of another organization holding REO.
That’s the date the bank completes relocation from its former banking premises to new bank premises or ceases to use the former premises, the date the bank decides not to use the real estate acquired for a future bank expansion, and so forth. So, if you look through here, this is going to include redemption periods and a bunch of other things.
Generally speaking, there aren’t specific penalties that are in here. However, once you have gone beyond that point and you’ve got regulators looking at you, they might seek to have you add additional capital because the way they view the REO is that it presents additional risk.
The whole purpose of the regulators in banking is to protect the public from potentially risky situations at financial institutions. What the regulators are going to do if the lender is outside of their terms with their REO holding period is they’re going to have increased inspections, ask for additional capital, and they might even get into capital controls if it gets really nasty.
Usually, what you’re going to find is that they’re not going to hold it like this. If you want to do a real deep dive on REO, this document (linked below), goes through all of it, including management and disposition, REO expenditures, and managing foreclosed properties.
I hope this is helpful for you. Thank you so much for being a member. Thanks for submitting questions this week. And I can’t wait to answer your questions next week.
