Regulatory Capital Rules: Treatment of Land Development Loans for the Definition of High Volatility Commercial Real Estate (HVCRE) Exposure

WASHINGTON, July 12 -- The Federal Deposit Insurance Corporation issued the following financial institution letter (No. FIL-39-2019):

Summary:

The federal banking agencies are issuing a notice of proposed rulemaking (proposal) to seek comment on the treatment of loans that solely finance the development of land for purposes of the one- to four-family residential properties exclusion in the definition of high volatility commercial real estate (HVCRE) exposure in the agencies' regulatory capital rule. This proposal expands on the notice of proposed rulemaking issued on September 28, 2018, which proposed to revise the definition of HVCRE exposure in the regulatory capital rule to conform to the statutory definition of a "high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loan," in accordance with section 214 of the Economic Growth, Regulatory Relief, and Consumer Protection Act.

Statement of Applicability to Institutions with Total Assets Under $1 Billion: This Financial Institution Letter is applicable to all institutions.

Highlights:

* For a loan to be eligible for the one- to four-family residential properties exclusion from the HVCRE exposure definition, the credit facility would be required to include financing for construction of one- to four-family residential structures.

* The one- to four-family residential properties exclusion would not include credit facilities that solely finance land development activities, such as the laying of sewers, water pipes, and similar improvements to land.

* A facility that solely finances land development would be categorized as an HVCRE exposure, unless the exposure meets another exclusion from the revised HVCRE exposure definition.

* Comments to this proposal will be accepted for 30 days after the date of publication of this proposal in the Federal Register.

Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer

Chief Financial Officer

Chief Risk Officer

Attachment:

Regulatory Capital Treatment of Certain Land Development Loans for the Definition of High Volatility Commercial Real Estate Exposures (https://www.fdic.gov/news/board/2019/2019-06-07-notational-fr-a.pdf)

Related Topics:

Risk-Based Capital Rules, 12 CFR Part 324

Contact:

Ben Bosco, Chief Capital Policy, at [email protected] or (202) 898-6853; Michael Maloney, Senior Policy Analyst at [email protected] or (202) 898-6516; or David Riley, Senior Policy Analyst at [email protected] or (202) 898-3728

Note:

FDIC Financial Institution Letters (FILs) may be accessed from the FDIC's website at www.fdic.gov/news/news/financial/index.html.

To receive FILs electronically, please visit www.fdic.gov/about/subscriptions/fil.html.

Paper copies may be obtained through the FDIC's Public Information Center, 3501 Fairfax Drive, Room E-1002, Arlington, VA 22226 (1-877-275-3342 or 703-562-2200).