Over the next couple of years, many banks will fail and be taken by by the government or larger institutions. that will be an agonizing process that some banks will try to avoid at any cost. I will explain in a multi part series what to watch out for:

Other Real Estate Owned (OREO) - Banks will take title to many properties during that downturn and put them into a category called Other Real Estate Owned (OREO). that real estate must be recorded upon foreclosure at fair value, with the difference within the recorded amount of the loan and the fair value of the property charged to the allowance for loan losses. I suppose that some Banks will fudge on that

“fair value” deduction and try to keep the loss as small as possible. Future writedowns of the OREO must be charged against operating income. Therefore, there will be two hits against banks regarding real estate. First, the difference within the loan outstanding and the fair value at the duration title is taken, and second, the difference within that fair value at foreclosure and what the property is finally sold at.

I attended a banking conference in February and was told that current offers for OREO by buyers are in the range of 40-50 cents on the dollar, and that at that day, most banks aren’t accepting such offers.

Part One

Original post by Eric J. Fox