Southwest - ACUIA

Southwest - ACUIA

ACUIA 22nd Annual Conference June 20, 2012 Accounting for OREO and Repossessed Collateral Doug Orth, CPA, CFE, Managing Partner Orth, Chakler, Murnane and Co., CPAs Presentation Objectives Gain an understanding of the

accounting and regulatory expectations for OREO and repossessed collateral. Identify common problems related to the accounting for OREO and repossessed collateral. Take away some best practices to share with CFOs and other stakeholders. Presentation Objectives

The number 1 Objective of this Presentation is: - Audience Participation - Audience Participation - Accounting Guidance FAS 15, Accounting by Debtors and Creditors for Troubled Debt Restructuring FAS 144, Accounting for the Impairment of Disposal of LongLived Assets Accounting Standards Codification 310-10 and 310-40

Definitions Other Real Estate Owned = OREO Repossessed collateral (non-real estate) = REPO OREO includes real estate acquired through: Foreclosure

Deed in lieu of foreclosure In-substance foreclosure (physical possession of property without legal proceedings property is abandoned by the borrower) Short Sale = Agreement with borrower to sell property for less than loan balance Accounting At Acquisition OREO should be recorded at fair value, less costs to sell = new cost basis

Fair value should be based on updated appraisal Costs to sell include broker commissions, legal and title transfer fees, closing costs, etc. Consider private mortgage insurance (PMI) if considered recoverable

Difference between new cost basis and loan balance = charge-off to the Allowance for Loan Losses account New cost basis is reclassified from loans to members to OREO Accounting During Holding Period Typical holding costs should be charged to expense:

Maintenance routine repairs; lawn maintenance; painting Real estate taxes current and arrears Insurance Other costs utilities; management/condo fees; advertising

Negative escrow balances taxes and insurance Accounting During Holding Period Typical holding costs charged to OREO: Major repairs/renovations that add value to the property Note: Determine if the appraisal amount is as is without the major repairs/renovations or assumes that the property will be updated Monitor/update the reasonableness of new cost basis:

If property is not sold within reasonable time frame, consider obtaining a new appraisal Subsequent reductions in the fair value of OREO should be charged to loss on assets via OREO allowance account Accounting During Holding Period OREO is generally Held-for-Sale; however, OREO can be rented or Held-for-Use (check with your state regulator)

If OREO is rented, it should be recorded at fair value (without regards to selling costs) The difference between the fair value and loan balance should be charged-off to the Allowance for Loan Losses account The estimated value of the building should be depreciated over a reasonable period as a charge to operating expenses Rental revenues and expenses should be recorded to the income statement consistent with the nature of the revenue or expense Accounting During Disposition Period A gain or loss on the sale of OREO should be recorded for the difference between the selling price of OREO, net of

selling costs, compared to the carrying amount of OREO Note: Material gains or losses recorded from the sale of OREO should be considered when developing the net charge-off ratios for mortgage loans If OREO is sold shortly after taking possession of the property, the gain or loss from the sale of OREO, can be recorded to the Allowance for Loan Losses account Note: Once the Credit Union takes control of the property, it is no longer considered a delinquent loan Tax Reporting

IRS Form 1099-A, Acquisition or Abandonment of Secured Property, should be filed the year that real property is acquired by the Credit Union through foreclosure or abandonment IRS Form 1099-C should be filed the year a short sale occurs, leaving the Credit Union with an unrecoverable loan balance Repos

For long-lived assets to be disposed of by sale, they should be classified as assets held-for-sale at the assets fair value less costs to sell Six criteria must be met prior to reclassification Reporting loan delinquency Repos Measuring impairment on vehicles: loan-by-loan approach average loss ratio on pool of repos average loss per unit Writing down the impairment amount: at the individual loan level

at the general ledger level only Call Reports Line 27 - Foreclosed and Repossessed Assets Requires the Credit Union to disclose the number and dollar balances related to Real Estate, Automobiles and Other Collateral Common Problems OREOs and REPOs are maintained at outstanding loan balance

Holding costs are capitalized OREO fair values are not reassessed Negative escrow balances on OREO Private mortgage insurance issues Thank You! Thank you for your attention and participation in todays session! Speaker Information Presented by: Doug Orth, CPA, CFE

Orth, Chakler, Murnane and Co., CPAs Telephone: 305-232-8272 305-794-5457 cell E-mail: [email protected]

Recently Viewed Presentations

  • CS235102 Data Structures

    CS235102 Data Structures

    Shell Sort Summary of Internal Sorting Introduction (1/9) Why efficient sorting methods are so important ? The efficiency of a searching strategy depends on the assumptions we make about the arrangement of records in the list No single sorting technique...
  • Meiosis (Gametogenesis) - Fort Bend ISD

    Meiosis (Gametogenesis) - Fort Bend ISD

    This process is a reductional division because the number of chromosomes per cell are cut in half. Meiosis is how gametes are formed. Cells go through two rounds of division in meiosis.
  • Tuesday, Dec. 13 1.Update your table of contents

    Tuesday, Dec. 13 1.Update your table of contents

    Guided Reading Section 2: Creating a Constitution. Making Generalizations. Generalizations. Well educated. ... What reasons did the Federalists give to defend their views on the ratification? 6. What reasons did the Antifederalists give to defend their views on the Constitution?
  • ASA Update - Alaska Council of School Administrators (ACSA)

    ASA Update - Alaska Council of School Administrators (ACSA)

    $12.7M which equals $50 to the BSA. Half of it from K-12 Foundation ($6.35M) Half from Pupil Transportation ($6.35M. $4.7M in one time funding from outside the formula. 25% from both School Debt Reimbursement (SDR) and Rural School Construction (REAA)...
  • Verb Conjugation Objective: TLW work in pairs using

    Verb Conjugation Objective: TLW work in pairs using

    Objective: TLW conjugate the verb comer using all singular and plural formatsand create a singular and plural sentence. Search Safari for an image you can use to describe a food you like to eat. Save the image to your iPad....
  • MY OWN HEALTH SECRETS Dietary Strategies for a

    MY OWN HEALTH SECRETS Dietary Strategies for a

    PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation PowerPoint Presentation YEARLY SHOPPING GUIDE Now available as an iPhone app! Realfoodmobileapp.com www.westonaprice.org SUMMARY
  • Metodologi Penelitian Tafsir Hadis Bahan ajar berbasis multimedia

    Metodologi Penelitian Tafsir Hadis Bahan ajar berbasis multimedia

    Metodologi Penelitian Tafsir Hadis Bahan ajar berbasis multimedia Disusun oleh Mohammad Anwar Syarifuddin 1 Pengertian Metodologi Penelitian Tafsir Hadis Pertemuan Pertama Pengertian Metodologi Penelitian Tafsir Hadis Standar Kompetensi Mahasiswa diharapkan dapat memahami konsep-konsep yang terkait dengan istilah metodologi penelitian tafsir...
  • DBQ - Patrick Henry High School

    DBQ - Patrick Henry High School

    What is a DBQ? A DBQ stands for Document Based Question. The purpose of a DBQ is to analyze documents to respond to a question. A DBQ can actually be easier than a Free Response Question (Essay) if you know...