Magazine article The RMA Journal

Agencies Announce Proposed Rule on Treatment of Hvcre

Magazine article The RMA Journal

Agencies Announce Proposed Rule on Treatment of Hvcre

Article excerpt

ON SEPTEMBER 18, the federal banking agencies issued for public comment a proposal to modify their capital rules for high-volatility commercial real estate exposures (HVCRE). This action is mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act. The act requires the capital rules to be amended to revise the definition of "high-volatility commercial real estate exposure" to conform to the statutory definition of a "high-volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan" in accordance with Section 214 of the act.

Additionally, to facilitate the consistent application of the revised HVCRE exposure definition, the agencies propose to 1) interpret certain terms in the definition that are generally consistent with their usage in other relevant regulations or in the instructions to the Consolidated Reports of Condition and Income, where applicable; and 2) request comment on whether any other terms in the revised definition would also require interpretation.

Background

To better capture the risk of certain kinds of real estate exposures, the agencies' capital rules have, since 2013, defined HVCRE exposure as a credit facility that, prior to conversion to permanent financing, finances or has financed the acquisition, development, or construction of real property. This HVCRE exposure definition generally excludes ADC credit facilities that finance one- to four-family residential properties, community development, or agricultural land exposures, as well as commercial real estate projects where the borrower meets certain contributed capital requirements and other prudential criteria. …

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