Federal Banking Regulatory Agencies Issue Final HVCRE Rule

Three federal bank regulatory agencies last week finalized a rule to modify the treatment of high volatility commercial real estate, a move long advocated by the Mortgage Bankers Association.

The final rule (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20191119b1.pdf), issued by the Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency, fulfills requirements under the Economic Growth, Regulatory Relief and Consumer Protection Act. It clarifies certain terms contained in the HVCRE exposure definition, generally consistent with their usage in the Call Report instructions. The final rule also clarifies the treatment of credit facilities that finance one- to four-family residential properties and the development of land, which is substantially similar to the proposal issued in July.

Additionally, in response to comments received by MBA and other industry trade groups, the final rule provides banking organizations with the option to maintain their current capital treatment for acquisition, development, or construction loans originated between January 1, 2015, and the effective date of the final rule, April 1, 2020.

MBA President and CEO Robert D. Broeksmit, CMB, issued a statement commending the agencies on the final rule.

“The Federal Reserve, FDIC and OCC’s finalized risk-based capital rule on the treatment of High Volatility Commercial Real Estate is the culmination of a years-long advocacy campaign to secure a legislative fix to the rule in the form of S. 2155–the Economic Growth, Regulatory Relief, and Consumer Protection Act, which MBA strongly supported,” Broeksmit said. “MBA is pleased with the agencies’ modifications to proposed elements of the HVCRE rule, which include our key recommendations, such as clarification on the treatment of credit facilities that finance raw land and one-to-four-family residential properties. The resulting guidance in how banks apply the rule to identify and report HVCRE exposures is also beneficial to the industry.”

Broeksmit said the final rule “provides clarity, ensures borrowers have access to credit to grow their businesses, and reduces barriers to building more multifamily housing.”