NW Arkansas Real Estate Rebounds, But Benton County OREO Stacks Up

by George Waldon  on Monday, Jun. 24, 2013 12:00 am  

Ron Pender, left, and Barry Cooksey are building houses in the Clower Farms neighborhood in Rogers and on other OREO lots acquired from Benton County lenders. Banks are working to convert into cash property recovered on failed development loans. (Photo by Brooke McNeely Galligan)

The northwest Arkansas housing market may be rebounding, but lenders remain a familiar sight among the ownership rolls of residential lots and undeveloped acreage all over Benton County.

Bank-owned residential property in the county tops 900 lots and 2,800 acres among a sampling of major OREO holdings from a group of 15 lenders alone

Five years after the real estate bubble burst, the balance sheets at Arkansas lenders reflect hundreds of millions of dollars in Other Real Estate Owned. Benton County property that secured loans on failed developments has contributed to the OREO total.

“I’ve been very active with the OREO up there,” said Wallace Fowler, chairman and CEO of Jonesboro’s Liberty Bank of Arkansas. “It’s an asset of the bank that’s not producing, so it bothers me.

“We’re not in an excessive position of ownership, thank goodness.”

Liberty recorded more than $29.6 million in total OREO on its books as of March 31. Five years ago, the total was only $4.9 million.

It’s a fiscal experience shared by lenders who participated in Benton County’s aggressive and competitive real estate development pre-2008. Banking activities have expanded to deal with the management chores associated with overseeing OREO portfolios that have grown to historic levels.

“You have to have reappraisals every year, which tells us what our write-down is,” Fowler said about keeping track of OREO valuations. “We now have six [to] eight employees involved with appraisals. We didn’t used to have any.”

In days gone by, lenders wrote down the value of OREO by 1/60 each month until it was liquidated or reduced to zero. The valuation rules have changed. However, the five-year window of getting OREO off the bank books is still in play to a degree, whether the lender’s primary regulator is state or federal.

The condition of the financial landscape has led to more bankers asking and receiving more time to deal with OREO.

“It’s a fairly common occurrence for an institution to request an extension to the holding period,” said Susannah Marshall, deputy commissioner of the Arkansas State Bank Department. “The commissioner” — Candace Franks — “determines whether to grant an extension on a case-by-case basis.”

State and federal regulators can grant a lender up to five additional years to dispose of OREO. Increased regulatory scrutiny has accompanied the widespread increase of real estate on the books.



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