Reserves of regulated lenders are required in a specified percentage of the outstanding loan balance for which types of loans or properties?

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Reserves—often called loan-loss reserves or allowances—are set aside by regulated lenders to absorb losses from a portfolio of assets. Regulators require a cushion based on the outstanding balance for several asset types to ensure the lender can cover potential losses.

Even performing loans carry a baseline reserve to reflect expected losses over time. When loans become nonperforming, the reserve is increased because the likelihood of loss is higher. For REO properties (foreclosed assets), a reserve is needed to cover ongoing costs such as maintenance, taxes, insurance, and potential value declines until the property is sold. Because regulators mandate a reserve for each of these asset categories, reserves are required across performing loans, nonperforming loans, and REO—so the correct overall answer is that reserves apply to all of these.