HVCRE Exception Stands to Affect Real Estate Construction Loans
Orange County partner Marty Taylor and Charlotte partnerKeith Mrochek had their advisory, “ HVCRE Exception Stands to Affect Real Estate Construction Loans,” listed by the American Bankers Association on its website as a resource for those needing it on the clarification of the HVCRE regulation within the Basel III capital requirements, which went into effect January 1.
The Basel III Final Rule defines an HVCRE loan as a Highly Volatile Commercial Real Estate Loan. Absent certain exceptions, any acquisition, development or construction loan is to be classified as an HVCRE Loan. If classified as such, the lender will be subject to increased reserve requirements for that loan. To avoid this, the lender must satisfy certain exceptions. The issue, however, is certain of the exceptions appear to be too restrictive and borrowers are highly resistant to such restrictions. To date, the regulators have provided little comfort to lenders as to the interpretation of the HVCRE Regulations, resulting in many lenders struggling with how to avoid an HVCRE loan classification but still address the legitimate concerns of their borrowers.