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House committee passes regulatory-relief bills

The House Financial Services Committee moved forward two bills on Thursday aimed at providing clarity and regulatory relief for real estate lenders.

Some analysts believe this marks the beginning of a slow moving unwinding of some of the Obama-era regulations on the financial services industry. 

The first was H.R. 2148, a bipartisan-sponsored bill that would clarify a post-financial crisis regulation on banks that provide construction and land-acquisition loans for commercial developments.

regreliefIn 2015, following  the directives under the Basel III international regulatory framework and the Dodd-Frank Wall Street Reform and Consumer Protection Act, U.S. banking regulators imposed a significantly tighter capital standard for so-called “high volatility commercial real estate (HVCRE)” loans.

There were some exemptions, but generally speaking, commercial construction and land-development loans held on the books by banks were risk-weighted at a level 50 percent higher than other commercial loans. The higher risk weighting required the banks to hold more money in reserve to support HVCRE loans.

The banking lobby opposed the rule and also complained that regulators did not adequately define what constitutes an HVCRE loan, or exempts a loan from the classification. Banking groups say the stiffer capital standards and confusion surrounding the law have put a chill on lending for commercial real estate developments, particularly when it involves smaller and midsized banks. Smaller banks have complained that they incur significant costs to comply with the rule, or when seeking an exemption.

“The lack of clarity around the original HVCRE rule coming out of Basel III … created significant uncertainty about the regulatory treatment of these types of loans,” said Lisa Pendergast, the CRE Finance Council’s executive director.

“The effect thus far has been to quell the liquidity traditionally provided by the banks for the construction and development of commercial and multifamily properties, a vital component of the U.S. economy,” she said.

The House bill, which was supported by major trade associations like the Mortgage Bankers Association, did not alter the capital standards. The bill does establish a new clause that grandfathers loans made prior to Jan. 1, 2015, under the old standards. The bill also included some changes that may make it easier for banks to seek an exemption. Banks also will have an off-ramp from the higher capital standard as the loan matures, or is converted into permanent financing.

The House committee passed the bill 59-1. The heavy bipartisan support bodes well for its chances of gaining approval in the full House and Senate, or getting rolled into a comprehensive package of regulatory reforms, according to the CRE Finance Council. 

In another move Thursday, the House committee passed H.R. 2954, which would exempt residential lenders who have originated fewer than 500 closed-end mortgage loans in each of the two preceding calendar years from the data collection and reporting mandated by the Home Mortgage Disclosure Act (HMDA), according to an MBA analysis. That threshold is now at 25 loans.

The bill also provides relief for multifamily lenders by exempting many institutions from having to report data under HMDA for their multifamily portfolios, the CRE Finance Council says. 


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