The Headache "I'm Getting a CRE Exam. How'd Yours Go?"

ABA Banking Journal, April 2009 | Go to article overview
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The Headache "I'm Getting a CRE Exam. How'd Yours Go?"

A community banker in the Northeast writes: "My institution is about to have a targeted commercial real estate examination. If your bank has had one already, can you please tell me about it."

Several prescribers answered this banker's call. Due to the sensitive nature of this topic, we are not identifying them other than by their region and their regulator. Certain other details have been rendered vague to avoid identification, as well. We welcome further submissions, which will be published on our website,, with the same protection. Find more CRE remedies at http://tinyurl/AspirinCRE

Remedy 1

Southern banker, examined by OCC.

We had an OCC exam in late September through mid-October, 2008.

Please be aware that the senior members of the exam team, including the examiner-in-charge, have been examining our bank for more than a decade, so they know us and our management inside out. They did not come in with a dictatorial attitude. They focused very heavily on real estate-development loans and spec construction loans.


They also looked very, very closely at all appraisals. I would suggest that all appraisals on land development and spec construction loans be current within six months, and that they absolutely should have and specify absorption rates. The team was real big on current absorption rates.

They also asked us to get some guarantors to show them they could service debt, if needed. When we asked a couple of guarantors to come up, from their hip pockets, with a principal payment on a subdivision loan, and they did so, it calmed many of the examiners' apprehensions. They were willing to discuss findings and we only had one loan to be rated sub-standard that we had not already rated internally.

I would suggest that the CEO or Chief Credit Officer be proactive on real estate development loans and spec house construction loans. I sent out a memo to all of my loan officers and had them send me a list of all of their loans of the above types. I got date of loan, master-note amount, amount advanced, location of house or lots, and appraisal date and amount. I then called our EIC about a month in advance and discussed my findings with him.

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The Headache "I'm Getting a CRE Exam. How'd Yours Go?"


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