FDIC to give new rules on real estate loans
In response to what they said are real estate lending concentrations that may make institutions more vulnerable to cyclical commercial real estate markets, federal bank regulators are preparing a new set of guidelines on commercial real estate lending.
The agencies involved said new rules will help identify institutions with commercial real estate loan concentrations that “may be subject to greater supervisory scrutiny.”
That language indicates the regulators may be preparing to suggest changes in underwriting at some banks and advise others to reduce their commercial real estate lending.
Regulators would take those steps following examinations. The government conducts such exams every 12 or 18 months, based on grades banks received on previous exams.
The proposed list of guidelines is from the Federal Reserve Board, Federal Deposit Insurance Corp., U.S. Office of the Comptroller of the Currency and Office of Thrift Supervision.
Among lending areas where the agencies’ proposal sets out guidelines and asks for comments are: strategic planning; underwriting; risk assessment and loan monitoring; portfolio risk management; management information systems; identifying and managing concentrations of real estate loans; and portfolio stress tests.
The Federal Register is to publish the proposed guidance later this week. Then, bankers and anyone else with opinions about banks’ real estate lending will have 60 days to send comments to any of the four regulators.
Regulators are to review comments and then issue final guidelines. The date for final guidelines is not yet specified.
The regulators said new guidelines will reinforce previous regulations and guidelines on commercial real estate lending.
The regulators said they are concerned about “concentrations in commercial real estate loans where repayment is primarily dependent on rental income or from the proceeds of the sale, refinancing or permanent financing of the property may expose institutions to unanticipated earnings and capital volatility due to adverse changes in the general commercial real estate market.”
(News Source: The Business Journal of Portland