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2/20/2014 9:24:27 PM
by
Recent guidance from the Office of the Comptroller of Currency (OCC) may cause Banks to evaluate its current risk management strategies as it pertains to the management of its foreclosed properties. In the “Other Real Estate Owned” booklet (Booklet) published in September 2013, the OCC identified eight risk categories that can have an effect on a Bank’s earnings, capital and franchise value. Those eight risk categories are: Credit, Interest Rate, Liquidity, Price, Operational, Compliance, Strategic and Reputation. While the OCC maintains that Price risk is of primary concern, Banks should be aware that the other risk categories can also negatively impact their Bank.
When managing foreclosed properties, Banks should to be concerned with both Operational and Reputational risks. A Bank’s operating policies for OREO can pose a risk resulting in reduced property revenues, excessive expenses, collateral deterioration, ineffective marketing and sales efforts just to name a few. Additionally, a Bank’s reputation may be impacted when it manages its foreclosed properties. Owning a deteriorated property or utilizing OREO management practices that are inconsistent with OCC guidance, local or state laws or federal regulations can create negative public opinion which may impact the Bank’s ability to maintain existing relationships or establishing new relationships.
Bank’s preservation and maintenance strategy.
To reduce both Operational and Reputational risks, Banks can make a minor shift to their preservation and maintenance strategy which will provide better oversight and control over its OREO properties, define duties, obligations and responsibilities and streamline communication of risk management policies and procedures.
Broker Direct preservation and maintenance.
Most Banks rely on a “Broker Direct” strategy to manage its OREO preservation and maintenance activities. This strategy means that a Real Estate broker, in addition to marketing and selling the foreclosed property, manages all the preservation and maintenance activities at the foreclosed property. The Broker Direct strategy, according to the OCC, may open the Bank to both Operational and Reputational risks as it lacks oversight of preservation and maintenance activities, lacks effective communication of risk management policies and procedures and contracts outlining duties, obligations and responsibilities resides with the Broker rather than the Bank.
Single Source Preservation and Maintenance strategy
Shifting to a Single Source Preservation and Maintenance strategy will help Bank’s reduce Operational and Reputational risks posed by the Broker Direct strategy. Using a single source preservation and maintenance company, like Blue Granite, provides Banks with greater oversight of preservation and maintenance activities, greater communication of risk management policies and procedures and contracts outlining duties, obligations and responsibilities are in the Banks control rather than the Real Estate Brokers control.
First, Blue Granite’s proprietary workflow management system, R3, provides full transparency of all preservation and maintenance activities. R3 provides Banks with greater control and oversight of preservation and maintenance activities at its OREO properties. Click on this link to learn more about our workflow management system R3.
Second, Blue Granite provides a more streamlined approach for the communication of risk management policies and procedures—communicating its risk management policies with ONE preservation and maintenance company rather than each preservation and maintenance vendor through the Bank’s Real Estate Brokers.
Lastly, with Blue Granite, Banks only have to enter into ONE contract that outlines duties, obligations and responsibilities.
Additional benefits of using Blue Granite are: predictive preservation and maintenance pricing not found in the current bid pricing model; standardized preservation and maintenance services—identical services will be performed at ALL OREO properties; routine preservation and maintenance schedule.
Don't hesitate to call Blue Granite at 866-981-5096 or email Mark Francis at mark@bluegranitepps.com to learn more about our company and our services and how we can help your bank effectively manage its Operational and Reputational risks.
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