Missouri Code of State Regulations › Title 20 - DEPARTMENT OF COMMERCE AND INSURANCE › Division 1140 - Division of Finance › Chapter 2 - Banks and Trust Companies › Section 20 CSR 1140-2.070 - Accounting for Other Real Estate

Current through Register Vol. 49, No. 14, July 15, 2024
PURPOSE: This amendment will allow consistent
				  treatment of an asset's valuation over the course of its life on the books of a
				  bank or trust company. Additionally, this amendment provides clarification to
				  stakeholders regarding the relatively recent federal law change. On September
				  27, 2019, the Federal Deposit Insurance Corporation, the Federal Reserve, and
				  the Office of the Comptroller of the Currency jointly issued an amended rule
				  that increased the threshold for residential real estate transactions requiring
				  an appraisal from two hundred fifty thousand dollars ($250,000) to four hundred
				  thousand dollars ($400,000). This rule became effective on January 1,
				  2020.
PURPOSE: This rule requires banks and trust companies
				  to account for other real estate in a manner that conforms to generally
				  accepted accounting principles and sets forth when such real estate must be
				  appraised.
(1)  For the
				purposes of this rule, other real estate shall include real property which is
				purchased by the bank under judicial or non-judicial foreclosure where the real
				property was security for debts previously contracted, which is purchased by
				the bank to protect its interest in debts previously contracted, which is
				acquired by the bank in partial or complete satisfaction of debts previously
				contracted, or which is owned by the bank and which has been, but is no longer,
				used or intended to be used as bank premises.
(2)  Other real estate should be booked or
				accounted for at the lower of-a) the book value of the real estate (or the loan
				to which it is attributable, plus allowable expenses and less any previous
				direct write-down unearned interest) or b) the fair market value of the real
				property at the date of the transfer to that category. Where the other real
				estate is attributable to debts previously contracted, any excess of the bank's
				investment in the loan over the fair market value of the real property must be
				charged against the reserve for loan losses. Additional charge-offs after
				foreclosure should be charged to other operating expenses. Examiners may
				classify any portion of the other real estate carried on the bank's
				books.
(3)  At the time real property is transferred to the other
				  real estate category, if the recorded value of the real estate exceeds four
				  hundred thousand dollars ($400,000), the bank shall obtain a current appraisal
				  prepared by an independent qualified appraiser to substantiate the fair market
				  value of the real property; provided that if such property has a recorded value
				  of four hundred thousand dollars ($400,000) or less, an evaluation shall be
				  performed and placed in file.
(A)  For purposes of this section, the evaluation must -
1.  Be in writing;
2.  Be dated;
3.  Describe the real estate, its condition, and both current
				  and projected use;
4.  List the sources of information;
5.  Describe analysis and supporting information;
6.  Give an estimate of market value based, as appropriate, on
				  cost and income, and any limiting conditions; and
7.  Provide the name, address, and signature of preparer, who
				  must have real estate training or experience, knowledge of the market and have
				  been independent of the loan decision.