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On May 24, the President signed into law S. 2155, the "Economic Growth, Regulatory Relief, and Consumer Protection Act," which the House passed the previous day (the Senate passed it in March). Among other provisions, it includes language clarifying implementation of the Basel III "High Volatility Commercial Real Estate" (HVCRE) risk-weight rules, and its exemptions. This provision comes from the "Clarifying Commercial Real Estate Loans Act," introduced in the House by Reps. Pittenger (R-NC) and David (D-GA) as H.R. 2148 and in the Senate by Sens. Cotton (R-AR) and Jones (D-AL) as S. 2405. NAR sent a letter of support to the full House of Representatives ahead of the vote, which was 258-159.
Under the HVCRE risk-weight rules, commercial acquisition, development, and construction (ADC) loans saw their risk-weight increased from 100% to 150%. As a result, commercial loans became less attractive to lenders, especially smaller banks. In addition, the rules are very broad, leading to confusion among lenders on implementation.
The provision resolves that by defining which loans are HVCRE and under what circumstances a loan can be exempt. Under the Act, these exemptions include one-to-four unit family residential properties, investments in community development or agricultural land, and certain well-capitalized loans. Taken as a whole, it clarifies and modifies the HVCRE rule to ensure that it is properly tailored, while still promoting economically responsible commercial real estate lending.
In 2017, the federal banking agencies issued a proposed rule addressing HVCRE loans; now that S. 2155 is law, they will need to withrdraw that rule and issue a new one that comports with the Act. NAR will closely monitor this process and work with the agencies to ensure a smooth implementation.