On November 7, 2017, the House passed H.R. 2148, the Clarifying Commercial Real Estate Loans Act, with broad bipartisan support. The Bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs. If enacted, the Bill would add a new Section 51 to the Federal Deposit Insurance Act to clarify the capital treatment of acquisition, development, and construction (ADC) loans characterized as high volatility commercial real estate (HVCRE) exposures. The capital rules require that, under the “standardized approach,” HVCRE exposures must be risk-weighted at 150% rather than the 100% risk weighting accorded to other commercial loans. Banks and industry groups have express concerns about the complexity of the current rule as it concerns HVCRE exposures, its uncertain application, and the burden it imposes on ADC lending. The Bill seeks to address those concerns.
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