Real Estate Rule Change

High volatility commercial real estate loans (more commonly known as HVCRE’s) are loans to borrowers who have contributed less than 15% of a project’s completed cost.  Banks have lobbied for changes to this regulation, which penalizes borrowers who have built equity in the land, based on years of ownership. It also penalized the banks, as it required them to hold an additional 50% capital against these loans to maintain the same capital ratios.

In 2018, Congress revised the guidelines for HVCRE loans as part of a new law easing bank regulations.    Under the new and improved HVCRE regulation, the increased capital for HVCRE loans is no longer required.  The rule change was thought to increase lending and the economy.  However, stay tuned as banking regulators are proposing capital rule changes that would revise the definition of “HVCRE exposure” to conform to the definition of “high volatility commercial real estate acquisition, development, or construction (HVCRE ADC) loans” originally recreated by the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA).