WASHINGTON, DC–A Senate bill may give banks and their borrowers some relief from the High Volatility Commercial Real Estate Loans, or HVCRE, rule.
It is possible that the bipartisan Clarifying Commercial Real Estate Loans (S. 2405), co-sponsored by Senators Tom Cotton (R-AR) and Doug Jones (D-AL), will also reform this rule, a source tells us.
The HVCRE rule, promulgated by Basel III, went into effect in 2016. It established a new risk-weight category requiring banks to hold more capital — 150% or one and half times as much — for such loans.
S. 2405 would amend the Federal Deposit Insurance Act to clarify specific requirements for acquisition, development, or construction (ADC) loans, according to our source. The HVCRE Rule has deterred many banks, including small community financial institutions, from making this type of loan – which can represent up to 50% of some small bank loan portfolios. S. 2405 would address key deficiencies in the agencies' regulations governing what is an HVCRE loan to ensure that they do not impede credit capacity or economic activity, while still promoting economically responsible commercial real estate lending, the source says.
An identical measure — H.R. 2148 — had nearly unanimous bipartisan support in the House Financial Services Committee and passed the US House of Representatives by voice vote in November last year.
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
