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BOARD OF GOVERNORS

OF THE

FEDERAL RESERVE SYSTEM

WASHINGTON, D.C. 20551 

DIVISION OF BANKING

SUPERVISION AND REGULATION

DIVISION OF CONSUMER AND 

COMMUNITY AFFAIRS

SR 12-10 

CA 12-9 

June 28, 2012 

TO THE OFFICERS IN CHARGE OF SUPERVISION AND APPROPRIATE 

SUPERVISORY AND EXAMINATION STAFF AT THE FEDERAL RESERVE 

BANKS AND FINANCIAL INSTITUTIONS SUPERVISED BY THE FEDERAL 

RESERVE

SUBJECT: Questions and Answers for Federal Reserve-Regulated Institutions Related to 

the Management of Other Real Estate Owned (OREO)

Applicability to Community Banking Organizations: This guidance applies to all institutions 

regulated by the Federal Reserve with OREO, including those with $10 billion or less in 

consolidated assets. 

This letter conveys various questions and answers regarding the management of OREO 

by institutions regulated by the Federal Reserve. During the recent financial crisis, financial

institutions have experienced a rise in OREO caused by general weaknesses in the housing 

market, including increases in delinquencies and defaults, house price declines, and weaknesses 

in the structure of a number of commercial real estate financings. The attached Questions and 

Answers for Federal Reserve-Regulated Institutions Related to the Management of Other Real 

Estate Owned (OREO) Assets document (Q&A document) is intended to clarify existing policies 

and promote prudent practices for the management of an institution’s OREO assets, addressing 

both safety-and-soundness policies and consumer compliance issues. 

The Federal Reserve’s longstanding guidance for the management and financial reporting 

of OREO assets is set forth in Section 2200 of the Commercial Bank Examination Manual and 

the instructions to regulatory reporting forms for banks and bank holding companies.1

 However, 

 

1 See, for example, Instructions for Preparation of Consolidated Reports of Condition and Income (FFIEC 031 and 

041) and Instructions for Preparation of Consolidated Financial Statements for Bank Holding Companies
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given the increase in OREO on financial institutions’ balance sheets, the Federal Reserve is 

issuing the attached Q&A document to reiterate this longstanding guidance and to highlight key 

concepts on the financial reporting, loss recognition, and management of OREO assets. Topics 

covered in the Q&A document include: 

• Transferring an Asset to OREO

• Reporting Treatment and Classification

• Appraisal Concepts 

• Ongoing Property Management 

• Operational and Legal Issues

• Sale and Transfer of OREO

Reserve Banks are asked to distribute this letter and the attached Q&A document to state 

member banks, bank holding companies, and savings and loan holding companies, as well as to 

supervisory and examination staff. Questions regarding this letter should be directed to the 

following individuals: 

• Division of Banking Supervision and Regulation: Mary Aiken, Manager, at (202) 

452-4534; Donald Gabbai, Senior Supervisory Financial Analyst, at (202) 452-3358; 

or Carmen Holly, Supervisory Financial Analyst, at (202) 973-6122, in Credit, 

Market, and Liquidity Risk Policy; and Matthew Kincaid, Senior Accounting Policy 

Analyst, at (202) 452-2028, in Accounting Policy; or 

• Division of Consumer and Community Affairs: Timothy Robertson, Senior 

Supervisory Consumer Financial Services Analyst, RB Oversight/CBO Supervision, 

at (202) 452-2565. 

In addition, institutions may send questions via the Board’s public website.2

Michael S. Gibson

Director

Division of Banking Supervision 

and Regulation 

Sandra F. Braunstein

Director

Division of Consumer 

and Community Affairs 

 

(FR Y-9C). Refer to the Federal Reserve’s public website under the tab “Reporting Forms” for reporting 

instructions. http://www.federalreserve.gov/reportforms/default.cfm

2 See http://www.federalreserve.gov/apps/contactus/feedback.aspx.
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Attachment: 

• Questions and Answers for Federal Reserve-Regulated Institutions Related to the 

Management of Other Real Estate Owned (OREO) Assets

Cross-references to:

• SR letter 12-5/CA letter 12-3, “Policy Statement on Rental of Residential Other Real 

Estate Owned (OREO) Properties

• SR letter 10-16, “Interagency Appraisal and Evaluation Guidelines” 

• CA letter 09-5, “Information and Examination Procedures for the “Protecting Tenants at 

Foreclosure Act of 2009” 

• CA letter 05-3, “Servicemembers Civil Relief Act of 2003” 

• SR letter 03-5, “Amended Interagency Guidance on the Internal Audit Function and its 

Outsourcing” 

• SR letter 00-17, “Guidance on the Risk Management of Outsourced Technology Service” 

• SR letter 95-16, “Real Estate Appraisal Requirements for Other Real Estate Owned 

(OREO)