Bill Tryon is GRS Group’s Director of Technical Quality
(707) 780-8187
[email protected]
Last week, we posted a summary of OCC requirements for environmental due diligence and risk management programs here.
In addition to the section specifically concerned with environmental due diligence programs, the handbook includes the following references which should be considered in developing a risk management program.
Appraisals and Evaluations
“For transactions requiring an appraisal or evaluation, if a bank has a valid and compliant appraisal or evaluation that was previously obtained in connection with the real estate loan, the bank does not need to obtain a new appraisal or evaluation…banks should establish criteria for assessing whether an existing appraisal or evaluation remains valid and discusses factors that should be considered, such as… environmental contamination”
Compliance Risk
“While environmental contamination can threaten loan repayment, as discussed in the “Credit Risk” section of this booklet, failure to ensure compliance with environmental laws and regulations can generate significant liability to a bank that is over and above the value of the collateral. While this liability typically manifests itself when a bank takes title to the collateral in satisfaction of debt, a bank most often sows the seeds of this risk at origination by failure to comply with the laws and regulations governing contaminated properties that are discussed later in this booklet.”
File Documentation
“Documents that the bank should maintain in its files include… any environmental reports deemed necessary, given the location, type of project and historical use.”
Classification of CRE Loans
“An asset classified as doubtful has all the weaknesses inherent in one classified “substandard” with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Circumstances that might warrant a doubtful classification for CRE loans could include… environmental issues.”