MBA Offers Recommendations on HVCRE Exposures

The Mortgage Bankers Association weighed in yesterday on proposed changes to the High Volatility Commercial Real Estate risk-based capital rule, offering recommendations on implementation issues and expressing concerns about certain rule interpretations.

The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp. and the Federal Reserve’s Board of Governors seek to amend the High Volatility Commercial Real Estate risk-based capital rule to implement section 214 of the Economic Growth, Regulatory Relief and Consumer Protection Act.

Under section 214 of EGRRCPA, federal banking agencies may only require a depository institution to assign a heightened risk weight to an HVCRE exposure if it is an HVCRE acquisition, development or construction loan. MBA noted it supports this legislative change and hopes to help the agencies implement the legislation in a way that provides the clarity and relief that Congress intended in a manner consistent with the principles of risk-based capital.

“In this regard, we applaud the flexibility the agencies have already shown in their interagency statement, which provided interim guidance on reporting under the legislation, which was necessary because the legislation became effective immediately when enacted (on May 24),” MBA President and CEO Robert Broeksmit, CMB, said in a letter to the three federal banking regulators.

The letter shared MBA comments and suggestions on questions about the proposal’s implementation and interpretation. “Most significantly, we have concerns that the proposed treatment of loans secured by vacant non-agricultural land and the treatment of loans secured by one- to four-family residential condominium property could cause unnecessary confusion because they would be inconsistent with the legislation in some cases,” it said. “We also recommend that the agencies allow for flexibility in the interpretation of ‘primarily finances,’ that the agencies make reevaluation of HVCRE loans from 2015 and after optional at the discretion of each financial institution and that the agencies clarify appraisal requirements in connection with multi-phase projects.”

MBA also urged the agencies to suspend existing 2015 FAQs issued under the current HVCRE rule and to formalize any relevant interpretations and guidance regarding the revised HVCRE rule through a notice-and-comment process.

“MBA and its bank members have engaged with the agencies over the years on the effective implementation of the HVCRE rule and we look forward to continuing to work together toward successful implementation of this legislative change,” Broeksmit said.