Proposed Changes to HVCRE
By: Stephen Rountree
On July 12, 2019, Regulatory agencies issued a proposed rulemaking change to the definition of High Volatility Commercial Real Estate (HVCRE). The proposed changes would include:
Source:
Proposal - https://www.fdic.gov/news/board/2019/2019-06-07-notational-fr-a.pdf
Definition - https://www.govinfo.gov/content/pkg/CFR-2019-title12-vol1/xml/CFR-2019-title12-vol1-part3.xml
- For a loan to be eligible for the one- to four-family residential properties exclusion from the HVCRE exposure definition, the credit facility would be required to include financing for construction of one- to four-family residential structures.
- The one- to four-family residential properties exclusion would not include credit facilities that solely finance land development activities, such as the laying of sewers, water pipes, and similar improvements to land.
- A facility that solely finances land development would be categorized as an HVCRE exposure, unless the exposure meets another exclusion from the revised HVCRE exposure definition.
- (1) One- to four-family residential properties;(2) Real property that:
- (i) Would qualify as an investment in community development …
- (ii) Is not an ADC loan to any entity described in 12 CFR 25.12(g)(3) (national banks) and 12 CFR 195.12(g)(3) (Federal savings associations), unless it is otherwise described in paragraph (1), (2)(i), (3) or (4) of this definition;
- (3) The purchase or development of agricultural land, which includes all land known to be used or usable for agricultural purposes (such as crop and livestock production), provided that the valuation of the agricultural land is based on its value for agricultural purposes …; or
- (4) Commercial real estate projects in which:
- (i) The loan-to-value ratio is less than or equal to the applicable maximum supervisory loan-to-value ratio … ;
- (ii) The borrower has contributed capital to the project in the form of cash or unencumbered readily marketable assets (or has paid development expenses out-of-pocket) of at least 15 percent of the real estate's appraised “as completed” value; and
- (iii) The borrower contributed the amount of capital required … before the … bank … advances funds under the credit facility, and the capital contributed by the borrower, or internally generated by the project, is contractually required to remain in the project throughout the life of the project. The life of a project concludes only when the credit facility is converted to permanent financing or is sold or paid in full…
Source:
Proposal - https://www.fdic.gov/news/board/2019/2019-06-07-notational-fr-a.pdf
Definition - https://www.govinfo.gov/content/pkg/CFR-2019-title12-vol1/xml/CFR-2019-title12-vol1-part3.xml