The Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Act”), signed into law on May 24, 2018, with immediate effect, amended multiple provisions of Dodd-Frank, including the capital requirements for loans secured by High Volatility Commercial Real Estate (“HVCRE”). The higher capital requirements for HVCRE are part of the post- crisis financial market reforms and were implemented by U.S. bank regulators in 2015. While the Act does not remove the HVCRE heightened capital requirement, it amends the approach in several important ways that limit the scope of its application and relieve some of the burdens of the requirements on lenders and borrowers.

HVCRE heightened capital requirements in effect under U.S. banking regulation require that a 150 percent risk weight be assigned to loans that finance the acquisition, development or construction of real property. The requirement generally excludes certain enumerated categories, including 1-4 family residential loans, agricultural loans, community development and commercial real property projects that meet specified loan-to-value and borrower contribution requirements. The result for covered loans is 1.5 times the capital requirement that would otherwise be applicable to the lending bank for a non-HVCRE loan, and the accompanying cost and credit availability effects on commercial real estate borrowers. The Act features several important changes and clarifications to the HVCRE requirements, including:

While the HVCRE requirements are still an important potential financing difficulty to consider when evaluating a project, the changes accomplished by the Act are a helpful development to limit the scope and duration of application of the heightened capital requirements.

© Polsinelli PC, Polsinelli LLP in CaliforniaNational Law Review, Volume VIII, Number 176