Agencies Finalize Proposed Rule Regarding Treatment of HVCRE

The FDIC, Federal Reserve and OCC today finalized a rule implementing a provision of the S. 2155 regulatory reform law regarding the treatment of high volatility commercial real estate. The law limits the exposures subject to a 150% risk weight to only those high-volatility commercial real estate loans that fall under the statutory “HVCRE ADC” definition. The final rule will be effective April 1, 2020.








The final rule defines an HVCRE ADC loan as one that is primarily financing or refinancing the acquisition, development or construction of a real property; 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.

Under the final rule, loans secured by land or improved real property may be excluded from the higher risk weight if they meet one or more criteria. These include loans that made to finance one-to-four family residential properties; real property projects for which the primary purpose is community development; agricultural land; and existing income-producing real property secured by a mortgage on such property, provided certain conditions are met; and certain commercial real property projects. In a significant win for ABA, the agencies are not automatically including “other land loans” as HVCRE exposures.