When the value of collateral declines significantly below the appraised value, we have been instructed by our regulator to “charge off” the difference. Example: original appraised value is $100,000; the value is now $80,000 due to deterioration in the market; we will write off $20,000 as a loss.

Because of constraints on our internal system, if we adjust this “loss” at the loan level, the credit bureau report would reflect a balance due of $20,000 less than the actual amount owed. This would not be fair and accurate reporting (FCRA) because the “write-off” is a book entry at the bank level for regulatory reporting purposes.

In order to have the customer accounts report to the credit bureau with no reflection of the internal charge off, we would have to manually update an excel spreadsheet with the “charge –offs” and manually adjust the month end delinquency for reporting.

Can anyone share their processes for these types of write-offs?

Why would these loans be treated different than any other criticized loan in which you have to partially charge down. Most banks processing systems have shadow non-accrual systems to handle this process.

Check with your vendor to see if your system does have this capability of "dual bookkeeping". I have worked with a bank that simply had not activated it and was doing a lot of manual work unnecessarily.

In days gone by, it was necessary to carry the legal balance on paper with the "book" (read customer) balance on the system. Your processing system probably has this capability. Ask about it. It essentially keeps 2 sets of books, bank and customer.

I need to correct my statement..customer balance is "legal" balance, book is bank.

Thank you for your input. Our system does not have a "shadow" account so we will have to manually process these write downs for reporting purposes. I need a drink.