WASHINGTON - A top federal regulator on Monday ordered commercial bank officers to correct promptly "a significant number of fundamental deficiencies" in their real estate lending operations. Comptroller of the Currency Robert L. Clarke, in a strongly worded memorandum addressed to board members and chief executive officers at 4,200 nationally charted banks, singled out three areas for criticism.
First, "basic lending principles have been ignored or compromised to increase volume and achieve higher levels of interest and fee income," Clarke said. In particular, banks are not requiring borrowers to invest enough of their own money in real estate projects.
Second, "too many banks have failed to obtain accurate, independent and timely appraisals" of the real estate projects to which they are lending.
Also, some banks are engaging in practices that make it difficult to determine when a real estate project is going bad.
Clarke's warning follows earlier reports of a big increase in real estate problems in New England and Arizona, on top of existing problems in the oil-producing states of Texas, Oklahoma and Louisiana.
Also federal bank examiners are studying the books of several banking companies with Florida operations including Barnett Banks Inc., First Florida Banks Inc., First Union Corp. and Southeast Banking Corp. Last year, bad loans, especially related to real estate, began rising at some Florida banks.
"Examination activity has revealed a significant number of fundamental deficiencies which require immediate attention," Clarke said.