FDIC Warns Banks to Prepare for More Problem Loans

Posted under Foreclosures, Housing Bubble, Real Estate, Recession by Darren Hom

One of the members of our team ran across this article from the Bank Wage-Hour and Personnel Report (No. 7, Vol. LVIII). My emphases are in bold.

The FDIC is warning banks to prepare for the increased workload that will come as more and more loans default. It’s advising banks to bring on the staff necessary to work these problems out with the borrowers.

The banking crisis is not going away. Don’t be caught off guard.

Shore Up Loan Workout Staff, FDIC Advises
April 15, 2008

The Federal Deposit Insurance Corporation (FDIC) is urging insured financial institutions with significant commercial real estate (CRE) concentrations, including concentrations of construction and development (C&D) loans, to immediately undertake a number of risk management actions. Such actions include bolstering the institution’s loan workout infrastructure and staffing to handle the increased workload associated with problem loans….

According to the FDIC, institutions with CRE and/or C&D concentrations should ensure that they have sufficient staff with the appropriate skill sets to properly manage an increase in problem loans and workouts.

Staffing decisions may involve hiring, making internal staffing changes, and training. Human resources strategists may also entail entering into arrangements with third-party experts on a temporary outsourcing basis. The FDIC suggests that management should develop a ready network of legal, appraisal, real estate brokerage, and property management professionals to handle additional prospective workouts.

If your institution’s management is currently adopting risk management strategies to contain the damage from subprime loan losses and the associated financial repercussions, you should insist on a place at the planning table. No risk management strategy can be successful without adequate staff who are appropriately trained to handle the potential wave of problem loans.

FIL-22-2008 can be downloaded from www.fdic.gov/news/news/financial/2008/fil08022.html.