Taking the Bite Out of Other Real Estate Owned Insurance (OREO)

June 2021

When you hear the term OREO, do you think of, arguably, the most delicious cookie with soft crème filling perfectly wedged between two chocolate wafers, or Other Real Estate Owned assets? While I think we could all use a sweet treat at this moment, let’s briefly shift our focus to the insurance component of OREO asset management. 
OREO is a lending term used to describe assets a lender, servicer, or asset management firm acquires as a result of foreclosure proceedings.  While the US has experienced a dramatic decrease in foreclosures since the 2008 housing market crash, all lenders should have policies and procedures in place for acquiring, holding, maintaining and disposing of OREO assets.
A key component of a lender’s risk management strategy is ensuring adequate insurance coverage is in place for residential and commercial assets, from the time a loan is originated through the life of the loan.  When a borrower defaults on a mortgage, the lender may elect to insure the asset under the bank’s umbrella policy, self-insure, or place coverage under a Real Estate Owned insurance policy. If an asset does not sell at a foreclosure auction, then the bank maintains responsibility of that asset for as long as it remains on their balance sheet.
A Real Estate Owned Insurance policy helps lenders protect OREO assets from the perils associated with vacant properties, and may offer coverage for wind, hail, fire, freeze, water damage, vandalism, theft, liability, and even flood, with no vacancy conditions. With a Real Estate Owned Insurance policy, coverage is issued under a master policy program and the lender can schedule coverage for individual OREO locations throughout the master policy term.
As an agent, you can help your lending clients when you partner with specialty providers who have access to multiple markets in this niche space and can also provide the option of online reporting and flexible billing terms. In spite of forbearance programs currently preventing the foreclosure of government backed residential properties, we are starting to see a slight increase in foreclosures on commercial and investment properties. 
Now is the time to take a bite of the OREO and talk to your lending clients about their OREO asset management strategy.

This information is provided for general informational purposes only and is not intended to provide individualized advice. All descriptions, summaries or highlights of coverage are for general informational purposes only and do not amend, alter or modify the actual terms or conditions of any insurance policy. Coverage is governed only by the terms and conditions of the relevant policy