To: Chief Executive Officers of All National Banks and Federal Savings Associations, Department and Division Heads, All Examining Personnel, and Other Interested Parties
The final rule will apply to all national banks and federal savings associations (collectively, banks), including community banks, except for qualifying community banking organizations electing to use the Community Bank Leverage Ratio Framework.
* The agencies are revising the HVCRE exposure definition to make it consistent with the statutory definition. The statutory definition excludes any loan made before
* The revised HVCRE exposure definition differs from the previous definition primarily in two ways:
* First, the previous definition applied to loans that financed acquisition, development, or construction (ADC) activities, whereas the new definition only applies to loans that "primarily" finance ADC activities and that are secured by land or improved real estate. This change excludes multipurpose credit facilities that primarily finance the purchase of equipment or other non-ADC activities.
* Second, the new definition permits the full appraised value of borrower-contributed land (less the total amount of any liens on the real property securing the HVCRE exposure) to count toward the 15 percent capital contribution of the real property's appraised "as completed" value, which is one of the criteria for an exemption from the heightened risk weight.
* The final rule includes a grandfathering provision, which will provide banking organizations with the option to maintain their current capital treatment for ADC loans originated on or after
* The final rule adds language to the definition of HVCRE exposure to clarify that the one- to four-family residential properties exclusion does not include credit facilities that solely finance land development activities, such as the laying of sewers, water pipes, and similar improvements to land. Thus, to qualify for this exclusion, a credit facility must finance the construction of one- to four-family residential structures. Under the final rule, a facility that finances land development but does not finance the construction of one- to four-family residential structures will be categorized as an HVCRE exposure, unless the exposure meets another exclusion.
* The agencies are also clarifying that condominium and cooperative construction loans will qualify for the one- to four-family residential property exclusion, as long as the repayment of the loans comes from the sale of individual condominium dwelling units or individual cooperative housing units.
Senior Deputy Comptroller and Chief Counsel
"Regulatory Capital Treatment for