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The HVCRE Easter Egg for Community Banks

July 5, 2017

Authors

Jerry Blanchard

The HVCRE Easter Egg for Community Banks

July 5, 2017

by: Jerry Blanchard

We have written several times about the rules concerning the appropriate risk weighting for High Volatility Commercial Real Estate (“HVCRE”) loans. The interagency FAQ published on April 6, 2015 provided some guidance but many banks continue to have questions about fact situations that are not addressed under the regulation.  Despite indications that an interagency task force was looking at a further set of FAQ nothing has yet come out. Despite that, there are actually grounds for optimism that the rules will yet be simplified.

Section 2222 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA)  requires that, not less than once every 10 years, the Federal Financial Institutions Examination Council (FFIEC) and the Board of Governors of the Federal Reserve System (Board), the Office of the

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HVCRE Update – New Interagency FAQ

April 14, 2015

Authors

Jerry Blanchard

HVCRE Update – New Interagency FAQ

April 14, 2015

by: Jerry Blanchard

As previously mentioned, the federal banking regulators have been working on a FAQ on the topic. The interagency FAQ was published on April 6, 2015. While there were no surprises in what was published there were a number of takeaways from the FAQ that lenders need to keep in mind and I have added those to my previous list of FAQ. Under Basel III, as a general rule, a lender applies a 100% risk weighting to all corporate exposures, including bonds and loans. There are various exceptions to that rule, one of which involves what is referred to as “High Volatility Commercial Real Estate” (“HVCRE”) loans. Simply put, acquisition, development and construction loans are viewed as a more risky subset of commercial real estate loans and are assigned a risk weighting of 150%.

HVCRE is defined to include credit facility that, prior to conversion to permanent financing, finances

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High Volatility CRE Rules and Contributed Capital

March 30, 2015

Authors

Jerry Blanchard

High Volatility CRE Rules and Contributed Capital

March 30, 2015

by: Jerry Blanchard

The new risk weighting rules applicable to commercial real estate are now fully in effect for all banks. The rule flows out of the new capital rulemaking carried out by the federal banking agencies as a result of Basel III. As a general rule, the agencies agreed to apply a 100% risk weighting to all corporate exposures, including bonds and loans. There were various exceptions to that rule, one of which involves what is referred to as “High Volatility Commercial Real Estate” (“HVCRE”) loans. Simply put, acquisition, development and construction loans are viewed as a more risky subset of commercial real estate loans and are assigned a risk weighting of 150%.

HVCRE is defined to include credit facility that, prior to conversion to permanent financing, finances or has financed the acquisition, development, or construction (ADC) of real property, unless the facility finances:

  • One- to four-family residential properties;
  • Real property that
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  • New Proposed Capital Rules May Mean the Death of Highly Leveraged ADC Transactions

    June 19, 2012

    Authors

    Jonathan Hightower

    New Proposed Capital Rules May Mean the Death of Highly Leveraged ADC Transactions

    June 19, 2012

    by: Jonathan Hightower

    Many bankers are spending their evenings attempting to work through the very dense and long Joint Notices of Proposed Rulemakings that together propose new capital standards for financial institutions.  Even though the proposed Basel III rules would not become effective until January 1, 2013 and the proposed risk-weighting rules would not become effective until January 1, 2015, bankers need to begin to understand how these rules will affect their capital planning now.  While the regulatory agencies are busily assuring bankers that the vast majority of financial institutions would have been in compliance if the proposed rules had been effective on March 31, 2012, the rules, as proposed, will certainly change how many financial institutions approach their capital planning and asset mixes.

    One facet of the rule that may impact many community banks and their borrowers is the proposed risk-weighting of certain commercial real estate (CRE) loans.  While acquisition,

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