WASHINGTON, DC–Washington DC is trying to give banks and their commercial real estate borrowers some relief from the High Volatility Commercial Real Estate Loans, or HVCRE, rule.

This 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.

The result was a pull back on construction lending among other types of bank finance.

Now official Washington is taking a two-tiered approach to providing some relief and much-needed clarity as well: Last week the House of Representatives passed the Clarifying Commercial Real Estate Loans Act and on the regulatory level the Federal Reserve, the Federal Deposit of Insurance Corp. and the Office of the Comptroller of the Currency have proposed a rule to simplify HVCRE. Comments for that are due on Dec. 26, 2017.

The House bill's purpose is to clarify how an HVCRE loan is classified, according to Trepp Talk. It writes:

The HVCRE rule increased the risk weighting of a loan held on a bank's balance sheet by 50%, so banks are required to hold capital totaling 12% against such loans, up from 8% for most commercial mortgages. But the rule didn't exactly spell out what would cause a loan to be classified as HVCRE.

The notice of proposed rulemaking addresses the same problem and offers up a new framework for HVCRE loans, CRE Finance Council Executive Director Lisa Pendergast tells GlobeSt.com. Here too, the goal is to create some clarity around the rule.

For instance, she said, the regulation seems to require ongoing monitoring of all acquisition, development and construction loans throughout their lives because they might become subject to HVADC treatment at anytime. That's, needless to say, a huge burden for banks.

Trepp Talk makes a similar point in its explanation of the House legislation:

The rule led to a mish-mash of interpretations by lenders, and threw a proverbial monkey wrench into the loan syndication business, simply because one bank might interpret the rule differently than another. In addition, some banks shied away from lending (even against income-producing properties) if they included any sort of redevelopment or construction component.

Between the bill and the proposed rulemaking, Pendergast says there is hope there will be relief for the banks.

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Official Washington Takes Aim at Simplifying HVCRE Rule

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