MBA, Trade Groups Urge House Support of HVCRE Bank Capital Bills

The Mortgage Bankers Association, in a separate letter and with a coalition of industry trade groups, urged members of the House Financial Services Committee to support legislation that would clarify and amend the High Volatility Commercial Real Estate bank capital rule.

H.R. 2148, the Basel III Clarifying Commercial Real Estate Loans Act (https://www.congress.gov/bill/115th-congress/house-bill/2148), is among several bills to be considered by the House Financial Services Committee this week.

MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said H.R. 2148 would make significant, positive changes to HVCRE rules. As written, he said, the HVCRE rule “is not sufficiently clear and triggers HVCRE status–and a 150 percent risk weight–for some acquisition, development and construction loans that do not present the elevated credit risk the rule was intended to capture.”

Key provisions of H.R. 2148, introduced by Reps. Robert Pittenger, R-N.C., and David Scott, D-Ga.:

–Clarifies the definition of an “HVCRE ADC Loan” (i.e., secured real property ADC loans where repayment is dependent upon future income/sale proceeds of such property);

–Permits banks to count the value of appreciated property toward the borrower’s required 15 percent capital contribution;

–Permits withdrawal of internally generated capital throughout the life of the project;

–Permits withdrawal of contributed capital once the project meets underwriting requirements for permanent financing;

–Permits withdrawal of HVCRE classification prior to the end of an ADC loan once the project meets underwriting requirements for permanent financing; and,

–Exempts loans originated prior to January 1, 2015.

MBA also expressed support for H.R. 2954, the Home Mortgage Disclosure Adjustment Act (https://www.govtrack.us/congress/bills/115/hr2954), which would appropriately increase the threshold for Home Mortgage Disclosure Act reporting. MBA said this exemption would be targeted to very small-volume lenders (both single- and multifamily) for whom the costs of complying with the expanded HMDA data could become prohibitive.

As currently written, the HMDA final rule, which becomes effective on January 1, 2018, states lenders must comply with HMDA reporting requirements if they originate 25 or more closed end mortgage loans in each of the preceding two years. This bill would increase that threshold from 25 to 500 originations in each of the preceding two years, and would also make the threshold a statutory–rather than purely regulatory–consideration.

MBA also said it supports “the spirit” behind introduction of H.R. 3971, the Community Institution Mortgage Relief Act (https://www.congress.gov/bill/115th-congress/house-bill/3971), “though we believe that Truth in Lending Act (TILA) regulatory relief should be holistic and address the challenges confronted by all business models as they seek to responsibly lend to creditworthy consumers. Additionally, MBA appreciates the efforts to raise the small servicer threshold from 5,000 to 30,000 loans. This is reflective of the realities of the costs in the servicing market and will allow small mortgage companies, community banks and credit unions the ability to continue to keep their valued customer relationships.”

MBA also expressed support for H.R. 1699, the Preserving Access to Manufactured Housing Act (https://www.congress.gov/bill/115th-congress/house-bill/1699). This legislation would allow more low-balance loans to fit within the cap on points and fees under the Home Ownership and Equity Protection Act by revising those triggers. “This will allow more consumers, particularly on the lower end of the economic spectrum, to gain access to safe and affordable mortgage credit,” MBA said.

In a separate letter, MBA and more than a half-dozen industry trade groups urged the committee to support H.R. 2148.

“The lack of clarity in the Rule and subsequent HVCRE Frequently Asked Questions published by the agencies on March 31, 2015 has resulted in a wide disparity in how banks classify their ADC portfolios as HVCRE or non-HVCRE,” the letter said. “This result has negatively impacted ADC loan decisions for some banks, leaving some borrowers with fewer and potentially more costly sources of ADC loan capital. The legislation would clarify and modify the 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 trade groups noted HVCRE rules are disproportionally affecting ADC lending by driving up borrowing costs and reducing credit availability. “The 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,” the letter said. “Many banks, including small community financial institutions, have been deterred from making this type of loan which impedes economic development across the nation.”

The letter noted 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, nearly $1 billion a day is maturing though 2019–including $469 billion in bank debt.

“Without adequate credit capacity, this wall of maturities could create problems in the banking system and the broader economy,” the letter said. “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. Without adequate credit capacity for this important sector, jobs and tax revenue will be lost.”

Joining MBA in the letter: the CRE Finance Council; the International Council of Shopping Centers; NAIOP, the Commercial Real Estate Development Association; the National Association of Home Builders; the National Association of Real Estate Investment Trusts; the National Association of Realtors; the National Multifamily Housing Council; and The Real Estate Roundtable.

EDITOR’S NOTE: The House Financial Services Committee passed all the above-mentioned bills on Oct. 12 with strong bipartisan support. The bills now go to the House floor for consideration.