Proposal would expand definition of HVCRE to include ‘land development’

Loans that solely finance the development of land for residential properties – unless they qualify for another exemption – would meet the latest definition of high volatility commercial real estate (HVCRE) for purposes of capital requirements under a proposal issued Friday by the federal banking agencies.

The Federal Deposit Insurance. Corp. (FDIC), the Federal Reserve Board, and the Office of the Comptroller of the Currency (OCC) proposed the change in the treatment of the loans, they said, to expand their proposal from last September which revised the definition of HVCRE as required by the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S. 2155).

The proposal – issued for a 30-day comment period – would apply to all banking organizations subject to the agencies’ capital rules.

The agencies indicated in their proposal that their action was stimulated by comments received from last fall’s proposal related to lot development loans. “The agencies believe that the regulatory capital treatment of such loans warrants further consideration and clarification before finalizing the definition of an HVCRE exposure,” the agencies stated, noting that the term “lot development loan” is not defined in the capital rule.

However, the agencies are proposing to use the term “land development” as a loan that finances the process of improving land, such as laying sewers, water pipes, and similar improvements to prepare land for new buildings and other structures.

The latest proposal expands on last fall’s effort, seeking comment on the treatment of land development loans for the purpose of the one- to four-family residential properties exclusion from the definition of HVCRE exposure.

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

Be the first to comment

Leave a Reply

Your email address will not be published.