A Bipartisan Opportunity to Clarify Rules on Commercial Real Estate Lending

CREFpic1This week, the House of Representatives passed H.R. 2148, the Clarifying Commercial Real Estate Loans Act. The bipartisan bill, sponsored by Representatives Robert Pittenger (R-NC) and David Scott (D-GA), would make much-needed clarifications and modifications to the High Volatility Commercial Real Estate (HVCRE) rule. MBA has strongly supported the bill, including with a letter to House leadership and a statement upon passage. The bill now heads to the Senate, where MBA will work to help advance it to the President’s desk.

The HVCRE rule requires banks to assign a 150 percent risk weight capital requirements for all acquisition, development or construction (ADC) loans unless the loan qualifies for one of the rule’s exemptions. The problem is that, as currently written, the rule is not sufficiently clear and it is not well aligned with risks in some respects. That makes bank ADC lending more expensive and reduces banks’ ability to finance ADC projects. This is bad for commercial real estate and bad for the economy. ADC projects are critical to supporting growth in jobs and the economy. Notably, the Pittenger-Scott bill does not eliminate higher capital requirements for HVCRE loans; it just better draws the line between ADC loans that should or should not be treated as “high volatility.”

Needless to say, the House passing the Pittenger-Scott bill is a significant event for MBA’s bank members involved in ADC lending, and it lays the foundation for positive ripple effects throughout the commercial and multifamily finance ecosystem.

Commercial and multifamily real estate finance is a nearly $4 trillion industry. Therefore, we must continue to support efforts to expand its growth and ensure its financial health. This bill helps to meet both of those goals.