MBA, Trade Groups Offer Support for House Bill Clarifying Basel III CRE Rules
The Mortgage Bankers Association and nearly a dozen other industry trade groups sent a letter supporting proposed House legislation that would clarify High Volatility Commercial Real Estate provisions under the Basel III rule.
The letter supports proposed legislation by Rep. Robert Pittenger, R-N.C., which would amend the Federal Deposit Insurance Act by clarifying capital requirements for certain HVCRE acquisition, development or construction loans.
Since introduction of the HVCRE rules in January 2015, MBA and other trade groups have called for clarification for key elements of the rule that not been provided by regulators, despite ongoing requests. The MBA/trade group letter emphasizes without modifications, consequences of the HVCRE rule could have an adverse economic impact on commercial real estate lending by U.S. banking organizations, and absent a response from the regulatory community, the proposed legislation addresses the problem.
“The HVCRE rules are disproportionally affecting ADC lending by driving up borrowing costs and reducing credit availability,” the letter said “The rules also appear to be contributing to the slowdown in bank commercial real estate lending.”
MBA and the trade groups asserted the current rules are overly broad and include many stabilized loans without construction risk in this HVCRE category, unduly burdening stabilized loans with capital charges appropriate to protect banks from heightened construction risks.
“Many banks, including small community financial institutions, have been deterred from making this type of loan–which can represent up to 50 percent of a small bank loan portfolio,” the letter said. “Of the $3.8 trillion in commercial real estate debt outstanding, commercial banks constitute our nation’s largest source of commercial real estate financing. Yet, approximately $1 billion a day is maturing though 2018–including $411 billion in bank debt. Without adequate credit capacity, this wall of maturities could create problems in the banking system and the broader economy.”
The proposed legislation addresses several specific deficiencies in the agencies’ regulations governing what constitutes an HVCRE loan. It does not eliminate the agencies’ ability to require banks to hold higher capital for HVCRE loans. Rather, the bill provides clarity, including which types of loans should and should not be classified as HVCRE loans. The proposed legislation would also clarify and modify HVCRE rules to ensure that they are appropriately calibrated and do not impede credit capacity or economic activity, while still promoting economically responsible commercial real estate lending.
“The commercial and multifamily real estate industry makes a significant contribution to the nation’s economy–contributing to America’s gross domestic product, employing millions of people and producing a significant amount of the taxes raised by local governments for essential public services,” the letter said. “Without adequate credit capacity for this important sector, jobs and tax revenue will be lost.”
Joining MBA in the letter: Building Owners and Managers Association International; CCIM Institute; Commercial Real Estate Finance Council; Institute of Real Estate Management; International Council of Shopping Centers; National Apartment Association; National Association of Home Builders; NAIOP Commercial Real Estate Development Association; National Association of Real Estate Investment Trusts; National Association of Realtors; National Multifamily Housing Council; and The Real Estate Roundtable.
