Proposed Legislation Could Level the Playing Field for CRE Construction Lending

Last week the House of Representatives passed "The Clarifying Commercial Real Estate Loans Act," H.R. 2148, by a voice vote, now sending it to the Senate for consideration by the Banking Committee. This legislation would ease Basel III capital requirements on CRE loans, in turn leveling the playing field between depository and nonbank lenders with the intention of spurring more construction lending.

More specifically, the bill redefines the valuation standard of HVCRE, defines the conversion and allows off-ramps from HVCRE status to permanent loan status prior to the end of the loan, codifies and clarifies the 150 percent risk weighting calculation, and exempts loans made prior to January 2015, according to an article in Asset Securitization Report.

The majority of lenders have cited proper rule interpretation and remaining competitive in the face of additional costs as the biggest challenges associated with the HVCRE classification. While the bill doesn't change the fundamental capital structure of HVCRE, it is crafted to allow more flexibility to make deals eligible for 100 percent risk weighting.

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