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Appraisal Practices Defended and Blamed

May 17, 1987

In David Myers' article on the Federal Home Loan Bank Board study (May 10), I suspect there is more than meets the eye. The problems that sank Continental Illinois Bank (your numbers by the way are incorrect) stemmed from its decision to be an 'Energy Lender' and its subsequent purchases of undocumented, secondary loans.

These loans were secured by oil leases and oil drilling chattels related to oil and gas exploration. What appraisals? The source of this funny paper was the Penn Square Bank of Oklahoma City, and before its failure in mid-1985, it sold $1 billion worth to C.I.B.

Regarding Bank of America's losses, its post-Giannini era of bumbling top management is almost as well known as the plot of "Dallas." One of its more interesting moves was to buy, in 1983, Seattle First National Bank, on the verge of bankruptcy from its involvement with the same Penn Square fiasco. SeaFirst required a $1.5 billion-line of credit to bail out on its oil and gas exploration loans. What real estate appraisals?

For an answer to the Veterans Administration's loan portfolio problems, I refer you to past government management triumphs, such as the Diamond Lane, Pentagon procurement policies and the Challenger disaster. Appraisals? What about politics?

DAVID M. CALLAHAN

Los Angeles

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