Alternative Investments

Other real estate (OREO)

What is Other Owned Real Estate (OREO)?

Other Real Estate Owned (OREO) is a banking accounting term that refers to real estate assets held by a bank but not part of its business. Often, these assets are acquired as a result of foreclosure proceedings. The large OREO assets on banks’ balance sheets could raise concerns about the institution’s overall health.

Learn about other owned properties

When real estate is considered “real estate owned,” it means the property is now owned by the lender because the borrower defaulted on the mortgage and the property didn’t sell at a foreclosure auction. Banks are usually not in the business of owning real estate, and end up in that position when a borrower has a problem (usually a foreclosure). A bank’s previous premise that has not yet been sold would be another example of a bank’s OREO assets as the property no longer generates income. Because real estate is not held as an income-generating asset, it is treated differently in banks’ accounting records and reports. The Office of the Comptroller of the Currency (OCC) regulates OREO assets held by banks.

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Most OREO assets are available for sale by the banks that own them. Many states have laws governing the acquisition and maintenance of OREO assets. Banks often need to maintain, maintain insurance, pay taxes, and aggressively market them.

An increase in OREO on a bank’s balance sheet could indicate that the institution’s creditworthiness is deteriorating while its nonprofit assets are growing. Since real estate is not a liquid asset, high levels of OREO can damage bank liquidity.

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