This letter provides guidance to credit unions in handling situations involving Other Real Estate Owned (OREO). It is important that credit unions understand the risks associated with OREO and review this letter for guidance. Credit unions are strongly encouraged to consider whether investing additional material resources into or holding an OREO is in the best interest of the credit union.
Management must assess the risk during each phase of the life cycle of foreclosed real estate (acquisition, holding period, and disposition) and consider such factors as ongoing valuation of the OREO, expenses of each phase, proper accounting, improvements, and holding OREO. Credit unions unfamiliar with OREO should strongly consider implementing policies and procedures to address all applicable risks and procedures for acquiring, holding and disposing of OREO. Examiners are expecting credit unions to properly account for OREO in conformance with generally accepted accounting principles and comply with federal and state laws pertaining to holding OREO. Credit unions who are not familiar with OREO should seek expert advice if it does not have the applicable knowledge and resources available.