Regulators Issue Proposed Rule Regarding Treatment of HVCRE

As expected, the financial regulatory agencies today issued a proposed rule implementing a provision of S. 2155, the new regulatory reform law, regarding the treatment of high volatility commercial real estate. The new law limits the exposures subject to a 150 percent risk weight to only those high-volatility commercial real estate loans that fall under the statutory “HVCRE ADC” definition.

The proposal defines an HVCRE ADC loan as one that is secured by land or improved real property; has the purpose of providing financing to acquire, develop or improve the real property such that the property would become income producing; and is dependent upon future income or sales proceeds from, or refinancing of, the real property for repayment of the loan. In addition to updating the definition, the proposal also provides additional clarity on the risk-weighting of HVCRE loans.

Comments on the proposal will be due 60 days after publication in the Federal Register.