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Proposed Rule to Amend Real Estate Lending Standards

Lending
June 15, 2021

Summary:

The FDIC has proposed a rule to amend the Interagency Guidelines for Real Estate Lending Policies to conform the method for calculating the ratio of loans in excess of the supervisory loan-to-value (LTV) limits with the capital framework established in the community bank leverage ratio (CBLR) rule.  The proposed amendment would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions.  Comments on the proposed rule will be accepted for 30 days after publication in the Federal Register .

Statement of Applicability: This Financial Institution Letter applies to all FDIC-supervised financial institutions.

Highlights:

  • The Interagency Guidelines for Real Estate Lending Policies, Appendix A to Subpart A of the FDIC’s Real Estate Lending Standards Regulation (Appendix), establishes supervisory LTV criteria for various real estate lending transaction types, but also allows exceptions to the supervisory LTV limits, measured against total capital, as defined in the capital rules.
  • Under the CBLR rule, qualifying community banking organizations that elect to use the CBLR framework are not required to calculate or report total capital as defined in the capital rules to include both tier 1 and tier 2 capital.  Under the Appendix, total capital is the denominator used in calculating the ratio of loans in excess of the supervisory LTV limits.
  • The proposed amendment would revise the Appendix so that all FDIC-supervised institutions would calculate the ratio of loans in excess of the supervisory LTV Limits using tier 1 capital plus the appropriate allowance for credit losses in the denominator, regardless of an institution’s CBLR election status.
  • The proposed amendment would provide a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions, and would approximate the historical methodology for calculating the ratio of loans in excess of the supervisory LTV limits.
  • Comments on the proposed rule will be accepted for 30 days after publication in the Federal Register .

Distribution:

FDIC-Supervised Institutions

Suggested Routing:

Chief Executive Officer
Chief Lending Officer

Attachment(s)
FDIC Safety and Soundness Standards
FDIC Real Estate Lending Standards
FDIC Appraisal Regulations

Last Updated: June 15, 2021