Many Hats - You are really basing current valuations based on what the borrower originally paid for the property. You are also making this determination based on a HUD-1 that is handed to you by the borrower???
I surely hope your evaluation methods have be validated by your regulators. Evaluations have to be derived from independent sources based on current market value, including comparable sales information. An evaluation as you describe it is worthless in my mind.
I work with a lot of banks and I have never heard of such a practice. There are a lot of properties bought in 20006-08 that aren't worth half of what borrower's paid for them.
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