Proposed Changes To HVCRE In 2018

Overview

International banking regulators responded to the 2008 financial crisis by increasing capitalization requirements with the Basel III Capital Accords.¹ Increased capitalization requirements affect any loan secured by High Volatility Commercial Real Estate (HVCRE). HVCRE loans are credit facilities that finance the acquisition, development, or construction of real property. They typically contain a loan-to-value ratio above 80%, with the borrower contributing less than 15% equity toward the project.²

In the U.S., Basel III is implemented through administrative rules set forth by federal agencies (the Federal Reserve, the FDIC and the Office of the Comptroller of the Currency) and through Congressional legislation. Change is coming up both avenues in the form of an agency rule and a bill known as the Pittenger Bill.³