Just when you thought the regulators had forgotten about HVCRE ADC, they issued a new notice of proposed rulemaking like they were Beyoncé surprise-dropping a new album. And then…they disappeared again! We were waiting for more news before alerting our readers but nothing has come to date. To bring those not in the HVCRE ADC-hive up to speed, the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) reformed the capital rule for acquisition, development and construction loans (HVCRE ADC exposures or loans) back in May 2018, but the regulations have yet to be conformed to the statutory regime.

Under the current statutory framework, an HVCRE ADC loan is a credit facility secured by land or improved real property which (A) primarily finances, has financed, or refinances the acquisition, development, or construction of real property; (B) has the purpose of providing financing to acquire, develop, or improve such real property into income-producing real property; and (C) is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility. Among other exceptions, the current statutory regime includes an exemption for loans that finance the acquisition, development, or construction of one- to four-family residential properties (the paragraph 2(i)(A) exemption).

On July 12, 2019, the Federal Reserve, FDIC and OCC released a Notice of Proposed Rulemaking (2019 NPR), in response to comments submitted to their September 2018 Notice of Proposed Rulemaking (2018 NPR). The 2018 NPR was meant to conform the regulatory capital rule to the updates brought about in EGRRCPA and the 2019 NPR supplements the previous proposal to narrow the paragraph 2(i)(A) exemption.
Continue Reading HVCRE ADC Update: Regulators Propose Eliminating Exemption for Land Development Loans