House Passes MBA-Supported Bill Clarifying Commercial Real Estate Loans Act

Michael Tucker mtucker@mba.org

November 08, 2017


The House, by voice vote yesterday, passed H.R. 2148, the Clarifying Commercial Real Estate Loans Act, which had strong support from the Mortgage Bankers Association.

H.R. 2148 (https://www.congress.gov/bill/115th-congress/house-bill/2148), introduced by Reps. Robert Pittenger, R-N.C., and David Scott, D-Ga., would clarify and amend the High Volatility Commercial Real Estate bank capital rule. MBA Senior Vice President of Legislative and Political Affairs Bill Killmer said the bill was necessary because the existing HVCRE rule "is insufficiently clear as written, which can cause some acquisition, development and construction loans to trigger HVCRE status and a 150 percent risk weight for loans that do not present the elevated credit risk the rule was intended to capture."

MBA President and CEO David Stevens, CMB, issued a statement commending the House, saying the bill will allow lenders to better meet the needs of their borrowers and will also support the overall commercial real estate finance ecosystem.

"Commercial and multifamily real estate finance is a nearly $4 trillion industry and touches almost every segment of the economy," Stevens said. "Acquisition, Development or Construction loans in particular, which this legislation supports, help to promote economic growth and job creation."

Specifically, the bill clarifies and adjusts the line between loans that should and should not be classified as HVCRE loans. An amendment to the legislation, authored by Rep. Carolyn Maloney, D-N.Y.,  harmonizes the legislation with language in the proposed changes recently noticed by regulators.

Ahead of the vote, MBA sent a letter sent yesterday to House leadership strongly urging support for H.R. 2148. 

"The banking agencies responsible for the HVCRE rule recently proposed to modify the treatment of ADC loans, proposing a new High Volatility Commercial Real Estate rule to replace the HVCRE rule," Killmer said. "While the proposal contains positive elements and we appreciate the regulators' willingness to make changes, the proposal would not fully address the problems with the current rule and would in fact make them worse in some respects, which makes the need for this legislation even more critical."

MBA said to address problems with the current rule and the agencies' proposal, H.R. 2148 would:
-- Clarify the definition of an "HVCRE ADC Loan" (i.e., secured real property ADC loans where repayment is dependent upon future income/sale proceeds of such property);
-- Permit banks to count the value of appreciated property toward the borrower's required 15 percent capital contribution;
-- Permit withdrawal of internally generated capital throughout the life of the project;
-- Permit withdrawal of contributed capital once the project meets underwriting requirements for permanent financing;
-- Permit withdrawal of HVCRE classification prior to the end of an ADC Loan once project meets underwriting requirements for permanent financing; and
-- Exempt loans originated prior to January 1, 2015.

During the H.R. 2148 markup process, Rep. Carolyn Maloney, D-N.Y., introduced an amendment that harmonized the legislation with a portion of the banking agencies' proposal that would help clarify the application of the rule. It incorporated language from the HVADC proposal ("principally financing or refinancing"); made a conforming change for internal consistency across two HVCRE exemptions and added technical language so the bill would have its intended impact even if the banking agencies were to replace the HVCRE rule with the HVADC rule. "These changes were critical to the adoption of the amendment and helped the legislation pass the Financial Services Committee 59 to 1," Killmer said.

If signed into law, H.R. 2148 would promote a more competitive commercial real estate finance market and enhance overall economic development and growth, the letter said.

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