Colorado Real Estate Journal – HVCRE Rule Amendments Give Lenders, Borrowers Clarity

On May 24, the Economic Growth, Regulatory Relief, and Consumer Protection Act (Public Law No: 115-174) took effect. Among other things, the act eases banking rules pertaining to so-called “high volatility commercial real estate” loans. Since Jan. 1, 2015, lenders have been required to maintain significantly greater capital reserves for loans classified as HVCRE to hedge the increased threat to their capital adequacy posed by loans that finance real estate projects regulators consider riskier. Lenders, in turn, often seek to recoup some of the cost of maintaining greater reserves by increasing their interest rates on HVCRE loans. This makes their pricing less competitive. To avoid this situation, lenders and borrowers wish to classify a loan as nonHVCRE. That was difficult to do with construction or development loans before the act passed. The definition of HVCRE loan was expansive. And excluding a loan from HVCRE classification almost always meant subjecting borrowers to stringent loan terms that, prior to the HVCRE rules being enacted, would have likely been unacceptable. This article summarizes the key ways in which the act amended the HVCRE rules to provide lenders and borrowers clarity and relief.

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