In this blog, we have described some of the original concerns with the “high volatility commercial real estate” loan regulation as well as some suggestions for change. These rules apply to certain real estate loans for acquisition, development and construction.
Recently, there have been suggestions that changes are possible regarding “high volatility commercial real estate” loans or “HVCRE” loans.
Here is a quick reminder of the issues. Effective January 1, 2015, all banking organizations were required to allocate significantly more capital when making commercial real estate loans that were considered to be HVCRE. Under these rules, an HVCRE loan had a risk weight for capital purposes 50% greater than the risk weight of a non-HVCRE commercial loan. Questions quickly arose.
An HVCRE loan is a loan that finances the acquisition, development or construction of real property prior to permanent financing. The regulations apply to existing loans as well as new loans.
There are important exceptions to this classification including: loans on one to four residential properties, community development loans, agricultural loans and certain qualifying real estate loans.
For real estate loans to qualify for the exception, the loan to value ratio must be less than or equal to the applicable …