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F ederal R eserve Bank
OF DALLAS
ROBERT
D. M C T E E R , J R .
p re s id e n t
AND CH IE F E X ECU TIV E O F F IC E R
Anni.et
in
AligUSt 1U,
1 QQ9
DALLAS, TEXAS 7 5 2 2 2
C
.
Notice 92-68
TO:
T h e C h i e f E x e c u t i v e O f f i c e r o f each
m e m b e r b a n k and o t h e r s c o n c e r n e d in
the E l e v e n t h Federal R e s e r v e D i s t r i c t
SUBJECT
C o m m e n t s on P r o p o s e d U n i f o r m
Real E s t a t e L en d i n g S t a n d a r d s
DETAILS
T h e Federal R e s e r v e Board, O f f i c e o f t he C o m p t r o l l e r o f the
C ur re n c y , Federal D e p o s i t I n s u r a n c e C o r p o r a t i o n , and t he O f f i c e o f T h r i f t
S u p e r v i s i o n h av e r e q u e s t e d p u b l i c c o m m e n t on p r o p o s e d u n i f o r m real e s t a t e
l e n d i n g s t a n d a r d s to i m p l e m e n t S e c t i o n 304 o f t he Federal D e p o s i t I n s u r a n c e
C o r p o r a t i o n I m p r o v e m e n t A c t o1991 (FDICIA).
f
In e s t a b l i s h i n g t he s e
sta n d a r d s , the a g e n c i e s are to c o n s i d e r the r i s k p o s e d to t he d e p o s i t
i n s u r a n c e f u n d s by such e x t e n s i o n s of credit, t he n ee d for s afe and sou nd
o p e r a t i o n of i n s u r e d d e p o s i t o r y i n s t i t u t i o n s , and t he a v a i l a b i l i t y o f credit.
In i m p l e m e n t i n g S e c t i o n 304, the a g e n c i e s are p r o p o s i n g to e s t a b l i s h
l o a n - t o - v a l u e (LTV) r a t i o l i m i t a t i o n s on real e s t a t e l e n d i n g by i n s u r e d
d e p o s i t o r y i n s t i t u t i o n s and by b a n k h o l d i n g c o m p a n i e s and t h e i r n o n b a n k
subsidiaries.
C o n s i d e r a t i o n is a lso b ei n g g i v e n to e x e m p t i n g l oa n s i n v o l v i n g
o r g a n i z a t i o n s or p r o j e c t s d e s i g n e d p r i m a r i l y to p r o m o t e t he e c o n o m i c
r e h a b i l i t a t i o n and d e v e l o p m e n t of l o w - i n c o m e areas.
T h e p r o po s al a ls o
i n c l u d e s p r o v i s i o n s a l l o w i n g l e n d i n g i n s t i t u t i o n s to m a k e a l i m i t e d a m o u n t
real e s t a t e l o a n s t ha t do not c o n f o r m w i t h t he p r o p o s e d LTV r a t i o l i m i t a t i o n s .
The B o a r d m u s t r e c e i v e c o m m e n t s by
be a d d r e s s e d to W i l l i a m W. Wiles, S ec re t a r y ,
R e s e r v e S ys tem, 2 0t h S t r e e t and C o n s t i t u t i o n
20551.
All c o m m e n t s s h o u l d r e f e r to D o c k e t
A u g u s t 31, 1992.
C o m m e n t s s ho ul d
B oa r d o f G o v e r n o r s of t he Federal
A ve nu e , N.W., W a s h i n g t o n , D.C.
No. R-0765.
ATTACHMENT
A t t a c h e d is a c o p y o f the B o a r d ’s N o t i c e as it a p p e a r s on p ag e s
3 1 5 9 4 - 6 1 1 , Vol. 57, No. 137, of the Federal R e g i s t e r d a t e d J u l y 16, 1992.
For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas:
Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162,
Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810.
This publication was digitized and made available by the Federal Reserve Bank of Dallas' Historical Library (FedHistory@dal.frb.org)
- 2 -
MORE INFORMATION
For m o r e i nf or m a t i o n , p l e a s e c o n t a c t Daniel K i r k l a n d , S u p e r v i s o r y
E x a m i n e r at (214) 744 -7 4 33 .
For a d d it i on al c o p i e s of this B a n k ’s notice,
p l e a s e c o n t a c t t he P ub l i c A f f a i r s D e p a r t m e n t at (214) 922 -5 2 54 .
S i n c e r e l y y ours,
31594
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
the Federal Reserve System also
proposes to establish loan-to-value ratio
Office of the Comptroller of the
limitations on real estate lending by
Currency
bank holding companies and their
nonbank subsidiaries. Certain
12 CFR Part 34
transactions would be excluded from
the LTV ratio limitations. Specifically, it
[Docket No. 92-12]
is proposed that these limits would not
apply to: Loans guaranteed or insured
FEDERAL RESERVE SYSTEM
by the U.S. government or an agency
12 CFR Parts 208 and 225
thereof, or backed by the full faith and
credit of a state government; loans
[Regulation H; Regulation Y; Docket No. R facilitating the sale of real estate
0765]
acquired by the lending institution in the
FEDERAL DEPOSIT INSURANCE
ordinary course of collecting a debt
CORPORATION
previously contracted; loans where real
estate is taken as additional collateral
12 CFR Part 365
solely through an abundance of caution
by the lender; loans renewed,
RIN 3064-AB05
refinanced, or restructured by the
DEPARTMENT OF THE TREASURY
original lender(s) to the same
borrower(s), without the advancement
Office of Thrift Supervision
of new funds; or loans originated prior
to the effective date of the proposed
12 CFR Part 563
regulation. In addition, the agencies are
[No. 92-284]
considering exempting loans involving
organizations or projects designed
RIN 1550-AA56
primarily to promote the economic
Real Estate Lending Standards
rehabilitation and development of lowincome areas. The proposal also
a g e n c i e s : Office of the Comptroller of
includes provisions allowing lending
the Currency, Treasury; Board of
institutions to make a limited amount of
Governors of the Federal Reserve
real estate loans that do not conform
System; Federal Deposit Insurance
with the proposed LTV ratio limitations.
Corporation; Office of Thrift
DATES: Comments must be submitted on
Supervision, Treasury.
or before August 31,1992.
a c t i o n : Notice of proposed rulemaking.
a d d r e s s e s : Office of the Comptroller of
S u m m a ry : Section 304 of the Federal
the Currency (OCC): Office of the
Deposit Insurance Corporation
Comptroller of the Currency,
Improvement Act of 1991 (FDICIA),
Communications Division, 250 E S t SW„
enacted December 19,1991, requires the Washington, DC 20219, attention:
federal banking agencies, the Office of
Docket No. 92-12. Comments will be
the Comptroller of the Currency, the
available for public inspection and
Board of Governors of the Federal
photocopying at the same location.
Board of Governors of the Federal
Reserve System, the Federal Deposit
Insurance Corporation, the Office of
Reserve System (Board): Comments,
Thrift Supervision, to adopt uniform
which should refer to Docket No. Rregulations prescribing standards for
0765, may be mailed to Mr. William W.
real estate lending. FDICIA defines real
Wiles, Secretary, Board of Governors of
the Federal Reserve System, 20th Street
estate lending as extensions of credit
secured by liens on interests in real
and Constitution Avenue, NW.,
Washington, DC 20551. Comments
estate or made for the purpose of
addressed to Mr. Wiles may also be
financing the construction of a building
delivered to the Board’s mailroom
or other improvements to real estate,
between 8:45 a.m. and 5:15 p.m., and to
regardless of whether a lien has been
taken on the property. In establishing
the security control room outside of
those hours. Both the mailroom and the
these standards, the agencies are to
security control room are accessible
consider The risk posed to the deposit
insurance funds by such extensions of
from the courtyard entrance on 20th
Street between Constitution Avenue and
credit; the need for safe and sound
C Street, NW. Comments may be
operation of insured depository
inspected in room B-1122 between 9
institutions; and the availability of
a.m. and 5 p.m., except as provided in
credit.
§ 261.8 of the Board’s Rules Regarding
In order to implement section 304, the
agencies are proposing to establish loan- Availability of Information, 12 CFR
to-value (LTV) ratio limitations on real
261.8.
Federal Deposit Insurance
estate lending by insured depository
Corporation (FDIC): Comments should
institutions. The Board of Governors of
DEPARTMENT OF THE TREASURY
be directed to the Executive Secretary,
Federal Deposit Insurance Corporation,
55017th Street, NW., Washington, DC
20429. Comments may be hand delivered
to room F-400,1776 F Street, NW.,
Washington, DC 20429, on business days
between 8:30 a.m. and 5 p.m. (Fax
Number (202) 898-3838). Comments will
be available for inspection at the same
address on business days between 9
a.m. and 4:30 p.m.
Office of Thrift Supervision (OTS):
Send comments to Director, Information
Services Division, Public Affairs, Office
of Thrift Supervision, 1700 G Street NW.,
Washington, DC 20552, attention:
Docket No. 92-284. These submissions
may be hand delivered to 1700 G Street
NW. from 9 a.m. to 5 p.m. on business
days; they may be sent by facsimile
transmission to FAX Number (202) 9067753 or (202) 906-7755. Submissions
must be received by 5 p.m. on the day
they are due in order to be considered
by the OTS. Late filed, misaddressed, or
misidentified submissions will not be
considered in this rulemaking.
Comments will be available for
inspection at 1776 G Street, NW., Street
Level.
FOR FURTHER INFORMATION CONTACT:
OCC: Frank R. Carbone, National Bank
Examiner, Office of the Chief National
Bank Examiner, (202) 874-5170; William
W. Templeton, Attorney, Legal Advisory
Services Division, (202) 874-5320;
Mitchell Stengel, Financial Economist,
Banking Research and Statistics, (202)
874-5240.
Board; Roger T. Cole, Assistant
Director (202) 452-2618, Rhoger H Pugh,
Manager (202) 728-5883, or Todd A.
Glissman, Supervisory Financial
Analyst (202) 452-3953, Division of
Banking Supervision and Regulation; or
Scott G. Alvarez, Associate General
Counsel (202) 452-3583, or Brian E.J.
Lam, Attorney (202) 452-2067, Legal
Division. For the hearing impaired only,
Telecommunication Device for the Deaf
(TDD), Dorothea Thompson (202) 4523544.
FDIC: Robert F. Miailovich, Associate
Director, Division of Supervision, (202)
898-6918; Robert Walsh, Examination
Specialist, Division of Supervision, (202)
898-6911; Garfield Gimber, Examination
Specialist, Division of Supervision, (202)
898-6913; Martha L. Coulter, Counsel,
Legal Division, (202) 898-7348, Federal
Deposit Insurance Corporation,
Washington, DC 20429.
OTS: John C. Price, Jr., Deputy
Assistant Director for Policy, (202) 9065745; Robert Fishman, Program Manager
for Credit Risk, (202) 906-5672; William
J. Magrini, Project Manager for Credit
Policy, (202) 906-5744, Supervision
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
Policy; Ellen J. Sazzman, Counsel
(Banking and Finance), (202) 906-7133.
Regulations and Legislation Division.
Chief Counsel’s Office, Office of Thrift
Supervision, 1700 G Street NW.,
Washington, DC 20552.
SUPPLEMENTARY INFORMATION:
A, Background
Section 304 of the Federal Deposit
Insurance Corporation Improvement Act
of 19911 (FDICIA), enacted December
19.1991, requires each federal banking
agency to adopt uniform regulations
prescribing standards for extensions of
credit secured by liens on interests in
real estate or made for the purpose of
financing the construction of a building
or other improvements to real estate,
regardless of whether a lien has been
taken on the property. In establishing
these standards, the agencies are to
consider: (a) The risk posed to the
deposit insurance funds by such
extensions of credit; (b) the need for
safe and sound operation of insured
depository institutions; and (c) the
availability of credit. The agencies are
to adopt uniform regulations Within 9
months of the date of enactment of
FDICIA. These regulations are to
become effective within 15 months
following enactment of FDICIA.
The legislative history of section 304
indicates that Congress desired to
curtail abusive real estate lending
practices to reduce risk to the deposit
insurance funds and to enhance the
safety and soundness of financial
institutions. Congress considered
placing explicit real estate lending
restrictions in the form of loan-to-value
(LTV) ratio limitations directly into the
statute. In the end, however. Congress
mandated that the federal banking
agencies establish uniform real estate
lending standards without specifying
what these standards should entail.
To implement the requirements of
section 304, the agencies propose to
adopt uniform regulations prescribing
certain real estate lending standards.2
* Public Law No. 102-242.105 Stat. 2236. 2354
(1991); 12 U.S.C. 1828(o); 12 U.S.C. 371(a).
2 The Board proposes to apply the proposed
standards to bank holding companies and their
nonbank subsidiaries.
The FDIC and the Board are considering
application of the proposed standards not only to
insured depository institutions but also to their
lending subsidiaries. Under the OCC’s existing
regulations, provisions of Federal banking statutes
and regulations applicable to national banks are
generally applicable to their operating subsidiaries
and to bank service corporations. 12 CFR 5.34(d)(2)
and 5.35{e)(3)(i) (1992). In addition, under section
24(d) of the Federal Deposit Insurance Act, 12 U.S.C.
1831a(d), as of December 19,1992, subsidiaries of
insured state banks will generally be prohibited
from engaging in activities that are not permissible
for subsidiaries of national banks unless the FDIC
Specifically, the agencies propose to
establish an LTV ratio framework for
real estate lending. Moreover, in
accordance with longstanding safe and
sound banking practices and other
regulatory requirements, the agencies
would expect each real estate extension
of credit to be based on proper loan
documentation and a recent appraisal or
evaluation of the real property financed
by the credit, in conformance with the
agencies’ respective appraisal
regulations and guidance.
B. Loan-To-Value Ratio Framework
LTV ratios have long been a primary
factor used by lending institutions in
determining the extent to which an
institution is willing to lend on a given
real estate parcel or project. The
agencies seek comment on whether LTV
ratios represent a suitable standard for
addressing the risks at which section
304 is aimed or whether some other
standard would be more appropriate.
• For the purposes of the standards
mandated by Section 304, the agencies
propose to define the LTV ratio by
taking the total amount of credit to be
extended and dividing by the appraised
value or evaluation of the property, as
appropriate, at the time the credit is
originated. In situations where the
lender does not hold a first lien position,
the total amount of credit being
extended would be combined with the
amount of all senior liens when
calculating this ratio. The agencies
request comment on this “loan-to-value
ratio” definition, including:
(a) The appropriateness of using the
appraised value or evaluation of a
property, as defined in the proposed
regulations, when calculating the ratio;
(b) Whether the definition should take
into consideration credit enhancements
or other assets pledged as additional
collateral in calculating the LTV ratio,
and, if so, the types of credit
enhancements or other assets that
should be deemed acceptable and the
way in which the LTV ratio should then
be calculated; and
(c) Whether the definition should be
applicable to the renewal, refinancing,
or restructuring of existing credits, and,
if so, how the terms renewal,
refinancing, and restructuring should be
defined.
The agencies also request comment on
two alternative methods of establishing
has determined that the activity does not pose a
significant threat to the appropriate deposit
insurance fund.
With regard to savings associations, the OTS is
considering application of the proposed standards
to all savings and loan service corporations and
subsidiaries.
31595
an LTV ratio framework for real estate
lending: One in which lenders would
individually establish LTV ratio limits,
within or below a range of supervisory
limits prescribed in uniform regulations
and subject to supervisory review; and
one in which the agencies would
prescribe maximum LTV ratio standards
for all insured depository institutions in
uniform regulations. Comment on all
aspects of the proposal is sought.3 The
agencies also ask for comment on
whether other real estate lending
standards should be adopted including,
for example, loan documentation and
credit review standards.
Alternative 1
Individual Lender Loan-To-Value
Ratio Standards.
With this approach, the agencies
propose to require management of
lending institutions to establish prudent
lending standards for specific categories
of real estate loans, including internal
LTV ratio lending limits, that are
consistent with safe and sound banking
practices under varying conditions. The
LTV ratio lending limits would be set by
lending institutions within or below
ranges of maximum LTV ratios that the
agencies propose to establish as follows:
Category of real estate loan
Range of maximum
permissible LTV
ratios (percent)
50 to
Pre-construction development.. 55 to
Construction and land devel 65 to
opment.
65 to
l-to -4 family residential prop 80 to
erty (owner-occupied).
80 to
65
70
80
80
95 *
95 *
1 Improved property loans include extensions of
credit secured by one of the following types of real
property: (a) Farmland committed to ongoing agricul
tural production; (b) non-owner-occupied 1-to-4
family residential property; (c) multi-family residential
property; (d) completed commercial property; or (e)
other income-producing property that has been com
pleted and is available for occupancy and use.
2 Any portion of a loan exceeding 85 percent LTV
should be covered by private mortgage insurance.
Each lending institution would be
required to establish maximum LTV
ratios for each category of loans within
or below the specified range. The
agencies would view the low end of
each supervisory range as a benchmark
3 The OTS currently has in place regulations that
establish loan-to-value ratios for certain types of
real estate loans. See e.g., 12 CFR 545.32(d),
545.33(d), 545.35(c), 563.97. The OTS intends to
review its current regulations to ensure that they
conform to the real estate lending requirements
ultimately promulgated pursuant to this rulemaking
and anticipates removal of duplicative or conflicting
material. The OTS welcomes comments on the
interaction between this rulemaking and its current
regulations.
31596
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
LTV ratio for that category of loan.
However, each institution would be
permitted to establish a higher
maximum LTV ratio, within the
supervisory range, for each category of
loan based on the institution’s
demonstrated expertise in that
particular type of lending, its
assessment of local and regional market
conditions, the institution's capital
position, its asset quality, and other
appropriate considerations.
After establishing maximum LTV
ratios for each category of real estate
lending, each lender would be expected
to specify criteria that would be used to
qualify loans at LTV ratio levels up to
the institution’s established maximums.
In specifying these criteria, the lender
should take into consideration
individual lending factors, such as the
financial strength of the borrower and
any guarantor, the debt coverage ratio of
the project, credit enhancements, “take
out” commitments, and the like. Any
portion of l-to-4 family residential
property loans and home equity lines of
credit exceeding an 85 percent LTV ratio
should, in any case, be covered with
private mortgage insurance.
A lending institution should only
make a loan at the upper end of the
supervisory range of LTV ratios (for that
lending category) when significant
positive features that would mitigate the
higher level of risk are present. For
example, for a construction loan, the
higher end of the range could potentially
be used when the loan meets specified
criteria such a certain level of pre-sales
or pre-leases, or if the borrower has
obtained a binding "take out”
commitment for permanent financing.
Consistent with safe and sound
banking practices, each lending
institution would be expected to fully
document its real estate lending
standards, including applicable LTV
ratio limits and other underwriting
requirements, in its written policies.
Such documentation would also be
expected to include adequate
justification of the LTV ratio limits set
by the institution.The agencies also
propose that these internal lending
standards be approved by the lending
institution's directors and be subject to
examiner review to determine the
institution’s conformance with
supervisory standards to be established
by the agencies.
With regard to this approach; public
comments are sought on:
(a) The appropriateness of the
proposed real estate lending categories;
(b) What ranges of maximum LTV
ratios should be established;
(c) What guidelines should be
provided to lenders to implement a
prudent internal LTV ratio framework;
(d) What criteria examiners should
use in assessing the adequacy of LTV
ratios used by lenders in light of
regulatory guidance; and
(e) The means by which the agencies
could ensure appropriate and consistent
interpretation of LTV ratio guidance by
both lenders and examiners.
Alternative 2
Uniform Loan-to-Value Ratio
Standard.
With this approach, the agencies
propose to establish uniform maximum
LTV ratios for specific categories of real
estate loans as follows:
The agencies also seek comment on
whether the maximum LTV ratio
applicable to construction and land
development loans should differentiate
between residential and commercial
properties and, if so, how.
For the “improved property laon”
category, comment is sought on the
appropriateness of implementing a
stricter LTV ratio for nonamortizing
credits and a level of amortization, if
any, that should be required in order to
receive preferential LTV ratio treatment.
C. Other Considerations Applicable to
Both Alternatives
The agencies do not intend to apply
this rule to loans to builders and
developers that are used for general
business purposes (such as payroll and
similar expenses) and that are not
Maximum LTV ratio
Category of real estate
related to any one project and are not
(percent)
loan
secured by real estate.
Public comment is sought on the
Raw land............................. 60
Pre-construction
65
following issues not specifically raised
development.
in the discussion of the above
Construction and land
75 (ff certain conditions
approaches:
are met; otherwise.
developm ent
(a) Whether additional quantitative
65%)
Improved property............. 75 (If the credit
real estate lending standards, such as
amortizes; otherwise.
lending concentration limits and loan
65%)
maturity limits, should be specified by
1-to-4 family residential
95 (With private
the agencies in a regulation or policy
property (ownermortgage insurance
(“PMI”); otherwise.
occupied).
guidance;
80%)
(b) Whether other lending standards
Home equity........................ 95 (With PMI; otherwise,
should be implemented to enhance
80%)
financial support provided by the
developer in a commercial real estate
These standards would be prescribed transaction, such as requiring the
for all lending institutions regulated by
developer to provide a legally
enforceable guarantee and/or recourse
the agencies.
o
With regard to estblishing a maximum to the devel’ per’s other assets; and
(c) Whether real estate developers
LTV ratio for each category of real
should be required to inject a specific
estate loan as defined in the proposed
regulation, the agencies request
level of equity upfront into a real estate
comment on:
project (for example, cash, cash
equivalents, or a substantial equity
(a) The appropriateness of the
position in the underlying real property)
proposed real estate lending categories:
relative to the appraised value or
and
evaluation, as appropriate, and, if so,
(b) The level at which the LTV ratio
the approrpirate level and form of equity
limit should be set for each loan
that should be required.
category.
With specific regard to ownerThe agencies also seek public
occupied, l-to-4 family residential
comment on several particular items.
property loans and home equity loans,
For the "construction and land
development loan” category, comment is comment is requested on:
(a) Whether LTV ratio ranges or limits
sought on:
(a) The appropriateness of allowing a should be established for each of these
lending categories;
higher LTV ratio limit when substantial
(b) Whether individual loans below a
third-party commitments exist that place
given threshold amount should be
the lender in a more secure position;
excluded from LTV ratio requirements,
(b) The criteria for determining that
and if so, the level at which this
substantial third-party commitments
threshold should be set; and
exist; and
(c) Whether, in addition to private
(c) The percentage of space in a real
mortgage insurance, other legallyestate project that should be ownerbinding guarantees or insurance from
occupied, pre-sold, or pre-leased to
financially-responsible third parties
qualify the borrower for preferential
should be given credit for supporting the
LTV ratio treatment.
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
portion of loans exceeding the specified
LTV ratio, and, if so, what types should
be permitted.
The agencies desire to accommodate
credit needs within the context of safe
and sound banking practices. In
particular, the agencies recognize that
situations may exist where it is
considered prudent to extend credit
beyond specified LTV ratio limits.
Hence, under the text of the proposed
regulation, the agencies are considering
allowing lending institutions to make
real estate loans that do not conform
with established LTV ratio limits up to
an amount not to exceed 15 percent of
the institution’s total capital. The
agencies would expect nonconforming
extensions of credit to be adequately
documented, reviewed by senior
management of the lending institution,
and reported to the lender's board of
directors.
The agencies seek public comment on
providing exceptions for nonconforming
loans. Specifically, for each of
Alternatives 1 and 2 separately, the
agencies seek comment on:
(a) Whether allowing an exception for
nonconforming loans should be
considered appropriate;
(b) The level of such an exception, if
appropriate;
(c) Whether total capital is an
appropriate measure for the exception;
(d) What documentation and review
should be considered appropriate for
nonconforming credits beyond the
normal approval process; and
(e) Whether other prudential
requirements or restrictions would be
appropriate to limit the risks associated
with excepted loans.
To further accommodate credit needs,
the agencies seek comment on whether
it would be appropriate to phase-in the
real estate lending standards when they
become effective, by Congressional
mandate, in March 1993, and, if so, how
they should be phased-in and within
what timeframe.
The agencies also propose to exclude
certain types of transactions from LTV
ratio limitations. Specially, LTV ratio
limitations would not apply to:
(a) Loans guaranteed or insured by
the U.S. government or an agency
thereof, or backed by the full faith and
credit of a state government;
(b) Loans facilitating the sale of real
estate acquired by the lending
institution in the ordinary course of
collecting a debt previously contracted;
(c) Loans where real estate is taken as
additional collateral solely through an
abundance of caution by-the lender;
(d) Loans renewed, refinance, or
restructured by the original lender(s] to
the same borrower(s), without the
advancement of new funds; or
(e) Loans originated prior to the
effective date of the proposed
regulation.
With regard to governmentguaranteed or insured credits, comment
is sought on how partially guaranteed or
insured credits should be treated under
this exclusion. The agencies request
comment on whether the above
provision on renewals, refinancing, and
restructurings of loans, including the
limitation on the advancement of new
funds, provides institutions with
sufficient flexibility to meet credit
demands.
The agencies also request comment on
whether the proposed real estate lending
standards contain enough latitude to
avoid hampering the lending programs
that institutions have established to help
fulfill their obligations under the
Community Reinvestment Act, 12 U.S.C.
2901 et seq., particularly those programs
designed to provide credit to low and
moderate income personal. Some of
these programs involve loans with high
LTV ratios but with other characteristics
that enhance their safety such as
government guarantees, public
subsidies, charitable foundation support
equity substitutes, assured tenant
demand, and the like. The agencies do
not wish to restrict these programs, and
seek comment on how they may be
accommodated within the spirit of the
Congressional directive to set general
standards for real estate lending. One
possibility would be to provide an
exemption for extensions of credit
involving organizations or projects
designed primarily to promote the
economic rehabilitation and
development of low-income areas.
Comment is sought on how such an
exemption could be defined in order to
prevent inappropriate interpretations.
The agencies request comment as to
whether they may distinguish among
lending institutions on the basis of the
institutions' financial and managerial
strength in implementing section 304. In
particular, the agencies request
comment on whether institutions, that
qualify as “well capitalized” for
purposes of Prompt Corrective Action
under section 38 of the Federal Deposit
Insurance Act, 12 U.S.C. 1831o, should
be given additional flexibility in the
implementation of the proposed real
estate lending standards, and, if so,
what the nature of that flexibility should
be. Further, the agencies seek comment
on whether such flexibility, if deemed
appropriate, should differentiate
between the following two groups of
lending categories, and, if so, in what
m anner
31597
(a) Raw land, preconstruction
development, and construction and land
development loans; and
(b) Improved property, l-to-4 family
residential property, and home equity
loans.
The agencies solicit comment on the
interaction of this proposed regulation
with risk-based capital requirements. In
addition, public comment is solicited on
all other aspects of the two approaches
being considered and the proposed
regulation.
Finally, the Board is seeking comment
on whether, to what extent and the
manner in which real estate lending
standards should be imposed on bank
holding companies and their nonbank
subsidiaries. In the Board’s view, it is
not clear by virtue of the text of section
304 whether such standards are
applicable to such entities.
Regulatory Flexibility Act Analysis
On the basis of the information
available, the OCC, FDIC, and OTS
independently certify that the proposed
rule will not have a significant economic
impact on a substantial number of small
entities within the meaning of the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.]. In developing the proposed rule,
it was the intent of the agencies to
propose prudent standards that are
currently used by sound institutions
and, as such, would not significantly
impact small entities. Nonetheless, the
other agencies join the Board in inviting
comments on the costs and benefits of
the proposed regulation with regard to
real estate lending operations at
banking organizations, the impact on
loan documentation and monitoring,
possible reduction in losses on real
estate lending, and the availability of
credit
Executive Order No. 12291
The OTS and the OCC have
preliminarily determined that this
proposal does not constitute a “major
rule” within the meaning of Executive
Order No. 12291. Accordingly, a
regulatory impact analysis is not
required. The OTS and the OCC will
issue final regulations that accomplish
the objectives of section 304 of FDICIA
without imposing unnecessary costs on
the economy. Toward that end, the OTS
and the OCC will, in the near future,
publish in the Federal Register a
separate discussion of the costs and
benefits of the regulatory approaches
outlined in the proposed rule.
Commenters are encouraged to take this
supplementary analysis into account
when providing their comments on this
proposed rule.
31598
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
To assist the OTS and the OCC in
OCC: Legislative and Regulatory
evaluating the magnitude of the
Analysis Division, Office of the
proposed rule, the OTS and the OCC
Comptroller of the Currency,
specifically invite commenters to
Washington, DC 20219.
provide any data they may have on the
Board: Mr. William W. Wiles, Secretary,
costs and benefits of the proposed rule
Board of Governors of the Federal
with regard to real estate lending
Reserve System, 20th Street and
operations at bank organizations, the
Constitution Avenue, NW.,
impact on loan documentation,
Washington, DC 20551.
monitoring and processing time, possible FDIC: Assistant Executive Secretary
reduction in losses on real estate
(Administration), room F-453, Federal
lending, and the availability of credit.
Deposit Insurance Corporation,
Washington, DC 20429.
Paperwork Reduction Act
OTS: Supervision Policy, Office of Thrift
The collection of information
Supervision, 1700 G Street, NW.,
contained in Alternative 1 of the
Washington, DC 20552.
proposed rule has been submitted to the
List of Subjects
Office of Management and Budget
(OMB) for review in accordance with
12 CFR Part 34
the requirements of the Paperwork
Mortgages, National banks, Real
Reduction Act (44 U.S.C. 3504(h)).
estate appraisals. Real estate lending
If Alternative 1 of the proposed rule
standards, Reporting and recordkeeping
becomes final, insured depository
requirements.
institutions will be required to establish
written maximum internal loan-to-value 12 CFR Part 208
ratio lending limits for certain types of
Accounting, Agriculture, Banks,
real estate loans within or below a
banking, Confidential business
permissible supervisory range. Each
information, Currency, Federal Reserve
institution will be required to specify in
System, Real estate lending standards,
writing the criteria it will use to qualify
Reporting and recordkeeping
loans at loan-to-value ratio ranges up to
requirements, Securities.
its established loan-to-value ratio limits.
The annual reporting burden for the
12 CFR Part 225
cqllecrtion of information from insured
Administrative practice and
depository institutions is estimated as
procedure, Banks, banking, Federal
follows:
Reserve System, Holding companies,
Real estate lending standards, Reporting
Estimated number of recand recordkeeping requirements,
ordkeepers:
Securities.
National banks (OCC)..
State member banks
(Board).
State
nonmember
banks (FDIC).
Savings associations
(OTS).
Estimated average burden
per recordkeeper:.
Estimated total annual
recordkeeping burden:
OCC...............................
Board.............................
FDIC...............................
OTS................................
3,750.
985.
7,550.
2,200.
20 hrs.
75,000 hours.
19,700 hours.
151,000 hours.
44,000 hours.
No burden is estimated for
Alternative 2 of the proposed rule since
no new or additional collection of
information are mandated beyond those
already required.
Comments concerning the accuracy of
this estimate and suggestions on
reducing the burden should be sent to
Gary Waxman, Office of Information
and Regulatory Affairs, Office of
Management and Budget, New
Executive Office Building, room 3208,
Washington, DC 20503; and to the
appropriate agency, as follows:
2.
For Alternative 1, a new “Subpart
D—Real Estate Lending Standards” is
proposed to be added to part 34 to read
as follows:
Subpart D—Real Estate Lending Standards
Sec.
34.61 Purpose and scope.
34.62 Definitions.
34.63 Real estate lending loan-to-value
restrictions.
Subpart D—Real Estate Lending
Standards
§ 34.61
Purpose and scope.
This subpart, issued pursuant to
section 304 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991,12 U.S.C. 1828(o), prescribes
ranges of maximum permissible loan-tovalue ratios to be used by insured
national banks in establishing their own
internal loan-to-value ratios of real
estate loans subject to this subpart.
§ 34.62
Definitions.
For the purposes of this subpart:
(a) The term loan-to-value ratio
means the ratio that is derived at the
time of loan origination by dividing an
extension of credit by the appraised
value or evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
extension of credit in determining the
12 CFR Part 365
loan-to-value ratio.
(b) The term real property or real
Banks, banking, Credit, Mortgages,
estate means an identified or
Real estate appraisals, Real estate
lending standards, Savings associations. identifiable parcel or tract of land,
together with any improvements and
12 CFR Part 563
certain rights appurtenant, including any
easements, servitudes, rights of way,
Accounting, Advertising, Crime,
Currency, Flood insurance, Investments, undivided or future interests, fixtures
and other similar interests, but not
Reporting and recordkeeping
including any licenses, profits a prendre,
requirements, Savings associations,
mineral rights, timber rights, growing
Securities, Surety bonds.
crops, riparian and other water rights,
Authority and Issuance
light and air rights, and other similar
interests.
Office of the Comptroller of the Currency
(c) The term extension o f credit means
12 CFR Chapter I
the total lending commitment, whether
For the reasons set out in the
by loan or line of credit, by a lender(s)
preamble, part 34 of chapter I of title 12
with respect to certain real property,
of the Code of Federal Regulations is
exclusive of any prior liens on or
proposed to be amended as set forth
interests in such property.
below:
(d) The term credit secured by real
property means a loan or line of credit
PART 34—[AMENDED]
secured wholly or substantially by a lien
1. The authority citation for part 34 is on or interest in real property for which
the lien or interest is central to the
revised to read as follows:
Authority: 12 U.S.C 1 et seq.\ 12 U.S.C 93a; extension of credit (i.e., the lender
would not have extended credit to the
12 U.S.C. 371; 12 U.S.C 1701j-3; 12 U.S.C
borrower in the same amount or on the
1828(o); 12 U.S.C. 3331 et seq.
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules_______ 31599
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing; or
subsequently acquired.
(e) The term loan origination means
the time of inception of an extension of
credit
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the OCC's
appraisal regulations (12 CFR part 34,
subpart C) and guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
fiii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development at stabilized occupancy
and cash flow.
(g) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(h) The term m ultifam ily residential
property means residential property
containing five or more individual
dwelling units.
(i) The term raw land loan means an
extension pf credit secured by real
property for the purpose of acquiring or
holding vacant land.
(j) The term pre-construction
development loan means an extension
of credit, whether or not secured by real
property, for the purposes of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(k) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(1) The term improved property loan
means an extension of credit secured by
one of the following types of real
property;
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(m) The term l-to-4 fam ily residential
property loan means an extension of
credit secured by owner-occupied l-to-4
family residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained pre-qualified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a 50 percent
risk weight loan under the risk-based
capital guidelines set forth in 12 CFR
part 3, appendix A.
(n) The term home equity loan means
an extension of credit secured by a
junior lien on or subordinated interest in
l-to-4 family residential property.
(o) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 34.63 of this
subpart.
§ 34.83 Real estate tending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this subpart are satisfied.
(b) Loan-to-value ratios. (1) Each
insured depository institution shall
establish internal loan-to-value ratio
limits within or below the range of
maximum permissible loan-to-value
ratios contained in this paragraph for
the categories of real estate loans
specified.
(2) For all categories of real estate
loans, the low end of each supervisory
range of maximum permissible loan-tovalue ratios is considered to be an
appropriate benchmark loan-to-value
ratio lending limit. For any particular
category of real estate loans, an insured
depository institution may establish an
internal loan-to-value ratio lending limit
above the lower end of the supervisory
range of maximum permissible loan-tovalue ratios if the institution’s
demonstrated expertise in that
particular type of lending, its
assessment of local and regional market
conditions, its capital position and asset
quality, and other pertinent factors
clearly justify such a higher limit
(3) Each insured depository institution
shall specify in writing the criteria used
by the institution to qualify loans at
loan-to-value ratio levels up to the
institution’s established internal loan-tovalue ratio lending limits.
(4) For each category of real estate
loans, an insured depository institution
shall only make a loan at the higher end
of the supervisory range of loan-to-value
ratios if significant positive features that
would mitigate the higher level of risk
are present.
(5) An insured depository institution’s
internal loan-to-value ratio standards
shall be reviewed and approved at least
annually by the institution’s board of
directors as being consistent with the
safe and sound operation of the
institution. These standards shall be
subject to examiner review in order to
determine the institution’s compliance
with this subpart.
(6) An extension of credit subject to
this subpart together with any senior
liens on or interests in the real property
securing or being improved by such
credit must not exceed any applicable
internal loan-to-value ratio lending limit
established by the institution under this
subpart.
(7) Subject to the other provisions of
this subpart, each insured depository
institution shall establish, within or
below the following supervisory ranges
of maximum permissible loan-to-value
ratios, internal loan-to-value ratio limits
for the following types of loans, based
on the appraised value or evaluation, as
appropriate, of the real property
securing or being improved by the loan,
determined at the time of loan
origination:
(i) For raw land loans, the maximum
permissible loan-to-value ratio shall not
exceed 50 percent to 65 percent of the
appraised value or evaluation;
(ii) For pre-construction development
loans, the maximum permissible loan-tovalue ratio shall not exceed 55 percent
to 70 percent of the appraised value Or
evaluation;
(iii) For construction and land
development loans, the maximum
permissible loan-to-value ratio shall not
exceed 65 percent to 80 percent of the
appraised value or evaluation;
(iv) For improved property loans, the
maximum permissible loan-to-value
ratio shall not exceed 65 percent to 80
percent of the appraised value or
evaluation;
(v) For l-to-4 family residential
property loans, the maximum
permissible loan-to-value ratio shall not
31600
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
exceed 80 percent to 95 percent of the
appraised value or evaluation;
(vi) For home equity loans, the
maximum permissible loan-to-value
ratio shall not exceed 80 percent to 95
percent of the appraised value or
evaluation; and
(vii) For l-to-4 family residential
property loans and home equity loans,
any portion of these loans exceeding 85
percent of the appraised value or
evaluation of the real property securing
the loan must be covered by private
mortgage insurance acceptable to the
OCC.
(c) Permissible nonconforming real
estate loans. An insured depository
institution may make real estate loans
that do not conform to the institution’s
internal loan-to-value ratio limits
established pursuant to this subpart,
provided that the aggregate amount of
all such real estate loans does not
exceed 15 percent of the institution's
total capital, as defined in appendix A
to part 3 of this chapter, and further
provided that such nonconforming real
estate loans are reported as lending
exceptions to the institution's board of
directors.
(d) Excluded transactions. The
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions
of credit:
(1) Guaranteed or insured by the
United States government or an agency
thereof, or backed by the full faith and
credit of a state government;
(2) Facilitating the sale of real estate
acquired by the insured depository
institution, through foreclosure or
otherwise, in the ordinary course of
collecting a debt previously contracted
in good faith;
(3) Where the real property is taken as
additional collateral solely through an
abundance of caution by the lender, and
the lender does not look principally to
the real property as security for the
extension of credit;
(4) Renewed, refinanced, or
restructured by the original lenders), or
its successor(s), to the same
borrower(s), without the advancement
of new funds; or
(5) Originated prior to [INSERT THE
EFFECTIVE DATE OF THE FINAL
RULE],
3.
For Alternative 2, a new “Subpart
D-Real Estate Lending Standards” is
proposed to be added to Part 34 to read
as follows:
Subpart D—Real Estate Lending Standards
Sec.
34.61 Purpose and scope.
34.62 Definitions.
34.63 Real estate lending loan-to-value
restrictions.
Subpart D—Real Estate Lending
Standards
§ 34.61
Purpose and scope.
This subpart, issued pursuant to
section 304 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991,12 U.S.C 1828(o), prescribes
maximum loan-to-value ratios
applicable to real estate lending by
insured national banks.
§ 34.62 Definitions.
For the purposes of this subpart:
(a) The term loan-to-value ratio
means the ratio that is derived at the
time of loan origination by dividing an
extension of credit by the appraised
value or evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
extension of credit in determining the
loan-to-value ratio.
(b) The term real property or real
estate means an identified or
identifiable parcel or tract of land,
together with any improvements and
certain rights appurtenant, including any
easements, servitudes, rights of way,
undivided or future interests, fixtures
and other similar interests, but not
including any licenses, profits a prendre,
mineral rights, timber rights, growing
crops, riparian and other water rights,
light and air rights, and other similar
interests.
(c) The term extension o f credit means
the total lending commitment, whether
by loan or line of credit, by a lenderfs)
with respect to certain real property,
exclusive of any prior liens on or
interests in such property.
(d) The term credit secured by real
property means a loan or line of credit
secured wholly or substantially by a lien
on or interest in real property for which
the lien or interest is central to the
extension of credit (i.e., the lender
would not have extended credit to the
borrower in the same amount or on the
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) The term loan origination means
the time of inception of an extension of
credit.
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the OCC's
appraisal regulations (12 CFR part 34,
subpart C) and guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) The term financially-responsible
guarantor means a guarantor who has
both the financial capacity and
willingness to provide support for an
extension of credit, and whose
guarantee does in fact support, either in
whole or in part, repayment of the
extended credit before or upon maturity.
(h) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(i) The term multifam ily residential
property means residential property
containing five or more individual
dwelling units.
(j) The term raw land loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(k) The term pre-construction
development loan means an extension
of credit, whether or not secured by real
property, for the purposes of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(1) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(m) The term improved property loan
means an extension of credit secured by
one of the following types of real
property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(n) The term l-to-4 fam ily residential
property loan means an extension of
credit secured by owner-occupied l-to-4
family residential property, including;
(1) A construction loan to a
prospective owner-occupant who ha*
obtained pre-qualified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a 50 percent
risk weight loan under the risk-based
capital guidelines set forth in 12 CFR
Part 3, Appendix A.
(0) The term home equity loan means
an extension of credit secured by a
junior lien on or subordinated interest in
l-to-4 family residential property.
(p) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 34.63 of this
subpart.
§ 34.63 Real estate lending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this subpart are satisfied.
(b) Loan-to-value ratios. An extension
of credit subject to this section, together
with any senior liens on or interests in
the real property securing or being
improved by such credit, must not
exceed any of the following percentages
of the real property's appraised value or
evaluation, as appropriate, determined
at the time of loan origination:
(1) For a raw land loan, 60 percent of
the appraised value or evaluation;
(2) For a pre-construction
development loan, 65 percent of the
appraised value or evaluation;
(3) For a construction and land
development loan, 75 percent of the
appraised value or evaluation if it
involves a project that:
(i) Will be at least 65 percent owneroccupied;
(ii) Is at least 65 percent pre-sold to a
buyer(s) with sufficient financial
capacity to complete the purchase
transaction;
(iii) Is at least 65 percent pre-leased to
a tenant(s) with sufficient financial
capacity to fulfill all material obligations
under the lease;
(iv) Has obtained a valid and binding
take-out loan commitment from an
31601
collecting a debt previously contracted
established lender for its permanent
financing;
in good faith;
(v) Has entered into a valid and
(3) Where the real property is taken as
binding agreement with a company that additional collateral solely through an
has an established reputation and
abundance of caution by the lender, and
sufficient managerial and financial
the lender does not look principally to
resources to use or operate the property the real property as security for the
as a business and to fulfill all material
extension of credit;
obligations under the agreement; or
(4) Renewed, refinanced, or
(vi) Has provided a legally
restructured by the original lender(s), or
enforceable guarantee(s) from a
its successors), to the same
financially-responsible guarantor(s);
borrower(s), without the advancement
(4) For all other construction and land of new funds; or
development loans, 65 percent of the
(5) Originated prior to [INSERT THE
appraised value or evaluation;
EFFECTIVE DATE OF THE FINAL
(5} For an improved property loan that RULE].
amortizes over the life of the loan, 75
Dated: June 26,1992.
percent of the appraised value or
Stephen R. Steinbrink,
evaluation;
(6) For an improved property loan that Acting Comptroller of the Currency.
does not amortize over the life of the
Federal Reserve System
loan, 65 percent of the appraised value
12 CFR Chapter II
or evaluation;
(7) For a l-to-4 family residential
For the reasons set out in the
property loan, 95 percent of the
preamble, parts 208 and 225 of chapter II
appraised value or evaluation with any
of title 12 of the Code of Federal
amount exceeding 80 percent of the
Regulations are proposed to be amended
appraised value or evaluation covered
as set forth below:
by private mortgage insurance
PART 208—MEMBERSHIP OF STATE
acceptable to the OCC;
BANKING INSTITUTIONS IN THE
(8) For a l-to-4 family residential
FEDERAL RESERVE SYSTEM
property loan without private mortgage
insurance, 80 percent of the appraised
1. The authority citation for part 208 is
value or evaluation;
(9) For a home equity loan, 95 percent revised to read as follows:
Authority: Sections 9 ,11(a), 11(c), 19, 21, 25,
of the appraised value or evaluation
and 25(a) of the Federal Reserve Act, as
with any amount exceeding 80 percent
amended (12 U.S.C. 321-338, 248(a), 248(c).
of appraised value or evaluation
461, 481-486, 601, and 611, respectively):
covered by private mortgage insurance
sections 4 ,13(j), and 18(o) of the Federal
acceptable to the OCC; and
Deposit Insurance Act, as amended (12 U.S.C.
(10) For a home equity loan without
1814,1823(j), and 1828(o), respectively);
private mortgage insurance, 80 percent
section 7(a) of the International Banking Act
of the appraised value or evaluation.
of 1978 (12 U.S.C. 3906-3909): sections 2,
(c) Permissible nonconforming real
12(b), 12(g), 12(i), 15B(c)(5), 17,17A, and 23 of
estate loans. An insured depository
the Securities Exchange Act of 1934 (15 U.S.C.
78b, 781(b), 781(g), 781(i), 780-4(c)(5). 78q,
institution may make real estate loans
that do not conform to the loan-to-value 78q-l, and 78w, respectively); section 5155 of
ratio limitations contained in paragraph the Revised Statutes (12 U.S.C. 36) as
amended by the McFadden Act of 1927: and
(b) of this section provided that the
sections 1101-1122
aggregate amount of all such real estate Institutions Reform,of the Financial
Recovery, and
loans does not exceed 15 percent of the
Enforcement Act of 1989 (12 U.S.C. 3310 and
institution's total capital, as defined in
3331-3351).
appendix A to part 3 of this chapter, and
2. For Alternative 1, a new “Subpart
further provided that such
C—Real Estate Lending” comprising
nonconforming real estate loans are
§ | 208.50 through 208.51 is proposed to
reported as lending exceptions to the
be added to part 208, as proposed to be
institution’s board of directors.
amended at 57 FR 29238, July 1,1992, to
(d) Excluded transactions. The
read as follows:
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions Subpart C—Real Estate Lending
of credit:
Sec.
(1) Guaranteed or insured by the
208.50 Definitions.
United States government or an agency
208.51 Real estate lending loan-to-value
thereof, or backed by the full faith and
restrictions.
credit of a state government;
(2) Facilitating the sale of real estate
Subpart C—Real Estate Lending
acquired by the insured depository
§208.50 Definitions.
institution, through foreclosure or
otherwise, in the ordinary course of
For the purposes of this subpart:
31602
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
(a) The term loan-to-value ratio
means the ratio that is derived at the
time of loan origination by dividing an
extension of credit by the appraised
value or evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
extension of credit in determining the
loan-to-value ratio.
(b) The term real property or real
estate means an identified or
identifiable parcel or tract of land,
together with any improvements and
certain rights appurtenant, including any
easements, servitudes, rights of way,
undivided or future interests, fixtures
and other similar interests, but not
including any licenses, profits a prendre,
mineral rights, timber rights, growing
crops, riparian and other water rights,
light and air rights, and other similar
interests.
(c) The term extension o f credit means
the total lending commitment, whether
by loan or line of credit, by a lender(s)
with respect to certain real property,
exclusive of any prior liens on or
interests in such property.
(d) The term credit secured by real
property means a loan or line of credit
secured wholly or substantially by a lien
on or interest in real property for which
the lien or interest is central to the
extension of the credit (i.e., the lender
would not have extended credit to the
borrower in the same amount or on the
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) The term loan origination means
the time of inception of an extension of
credit.
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the Federal
Reserve’s appraisal regulations, subpart
G to part 225 of this chapter, and
guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(h) The term m ultifam ily residential
property means residential property
containing five or more individual *
dwelling units.
(i) The term Raw Land Loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(j) The term Pre-Construction
Development Loan means an extension
of credit, whether or not secured by real
property, for the purpose of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(k) The term Construction and Land
Development Loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(1) The term Improved Property Loan
means an extension of credit secured by
one of the following types of real
property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(m) The term l-to-4 Family
Residential Property Loan means an
extension of credit secured by owneroccupied l-to-4 family residential
property, including;
(1) A construction loan to a
prospective owner-occupant jwho has
obtained prequalified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a category 3,
50 percent risk weight loan under the
risk-based capital guidelines set forth in
appendix A to part 208.
(n) The term Home Equity Loan
means an extension of credit secured by
a junior lien on or subordinated interest
in l-to-4 family residential property.
(o) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 208.51(b) of
this p art
§ 208.51 Real estate lending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this section are satisfied.
(b) Loan-to-value ratios. (1) Each
insured depository institution shall
establish internal loan-to-value ratio
limits within or below the range of
maximum permissible loan-to-value
ratios contained in this section for the
categories of real estate loans specified.
(2) For all categories of real estate
loans, the low end of each supervisory
range of maximum permissible loan-tovalue ratios is considered to be an
appropriate benchmark loan-to-value
ratio lending limit. For any particular
category of real estate loans, an insured
depository institution may establish an
internal loan-to-value ratio lending limit
above the lower end of the supervisory
range of maximum permissible loan-tovalue ratios if the institution’s
demonstrated expertise in that
particular type of lending, its
assessment of local and regional market
conditions, its capital position and asset
quality, and other pertinent factors
clearly justify such a higher limit.
(3) Each insured depository institution
shall specify in writing the criteria used
by the institution to qualify loans at
loan-to-value ratio levels up to the
institution’s established internal loan-tovalue ratio lending limits.
(4) For each category of real estate
loans, an insured depository institution
shall only make a loan at the higher end
of the supervisory range of loan-to-value
ratios if significant positive features that
would mitigate the higher level of risk
are present.
(5) An insured depository institution’s
internal loan-to-value ratio standards
shall be reviewed and approved at least
annually by the institution’s board of
directors as being consistent with the
safe.and sound operation of the
institution. These standards shall be
subject to examiner review in order to
determine compliance with this section.
(6) An extension of credit subject to
this section, together with any senior
liens on or interests in the real property
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
securing or being improved by such
credit, must not exceed any applicable
internal loan-to-value ratio lending limit
established by the institution under this
section.
(7) Subject to the other provisions of
this section, each insured depository
institution shall establish, within or
below the following supervisory ranges
of maximum permissible loan-to-value
ratios, internal loan-to-value ratio limits
for the following types of loans, based
on the appraised value or evaluation, as
appropriate, of the real property
securing or being improved by the loan,
determined at the time of loan
origination:
(i) For Raw Land Loans, the maximum
permissible loan-to-value ratio shall not
exceed 50 to 65 percent of the appraised
value or evaluation;
(ii) For Pre-Construction Development
Loans, the maximum permissible loanto-value ratio shall not exceed 55 to 70
percent of the appraised value or
evaluation;
(iii) For Construction and Land
Development Loans, the maximum
permissible loan-to-value ratio shall not
exceed 65 to 80 percent of the appraised
value or evaluation;
(iv) For Improved Property Loans, the
maximum permissible loan-to-value
ratio shall not exceed 65 to 80 percent of
the appraised value or evaluation;
(v) For l-to-4 Family Residential
Property Loans, the maximum
permissible loan-to-value ratio shall not
exceed 80 to 95 percent of the appraised
value or evaluation;
(vi) For Home Equity Loans, the
maximum permissible loan-to-value
ratio shall not exceed 80 to 95 percent of
the appraised value or evaluation; and
(vii) For l-to-4 Family Residential
Property Loans and Home Equity Loans,
any portion of these loans exceeding 85
percent of the appraised value or
evaluation of the real property securing
the loan must be covered by private
mortgage insurance acceptable to the
Board.
(c) Permissible nonconforming real
estate loans. An insured depository
institution may make real estate loans
that do not conform to the institution’s
internal loan-to-value ratio limits
established pursuant to this section
provided that the aggregate amount of
all such real estate loans does not
exceed 15 percent of the institution’s
total capital, as defined in appendix A
to part 208, and further provided that
such nonconforming real estate loans
are reported as lending exceptions to the
institution’s board of directors.
(d) Excluded transactions. The
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions
of credit:
(1) Guaranteed or insured by the
United States government or an agency
thereof, or backed by the full faith and
credit of a state government;
(2) Facilitating the sale of real estate
acquired by the insured depository
institution, through foreclosure or
otherwise, in the ordinary course of
collecting a debt previously contracted
in good faith;
(3) Where the real property is taken as
additional collateral solely through an
abundance of caution by the lender, and
the lender does not look principally to
the real property as security for the
extension of credit;
(4) Renewed, refinanced, or
restructured by the original lender(s), or
its successors), to the same
borrower(s), without the advancement
of new funds; or
(5) Originated prior to [INSERT THE
EFFECTIVE DATE OF THE FINAL
RULE].
3.
For Alternative 2, a new “Subpart
C—Real Estate Lending” comprising
§ § 208.50 through 208.51 is proposed to
be added to part 208, as proposed to be
amended at 57 FR 29238, July 1,1992, to
read as follows:
Subpart C—Real Estate Lending
Sec.
208.50 Definitions.
208.51 Real estate lending loan-to-value
restrictions.
Subpart C—Real Estate Lending
§208.50 Definitions.
For purposes of this subpart:
(a) Loan-to-value ratio means the
ratio that is derived at the time of loan
origination by dividing an extension of
credit by the appraised value or
evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
extension of credit in determining the
loan-to-value ratio.
(b) Real property or real estate means
an identified or identifiable parcel or
tract of land, together with any
improvements and certain rights
appurtenant, including any easements,
servitudes, rights of way, undivided or
future interests, fixtures and other
similar interests, but not including any
licenses, profits a prendre, mineral
rights, timber rights, growing crops,
riparian and other water rights, light and
air rights, and other similar interests.
31603
(c) Extension o f credit means the total
lending commitment, whether by loan or
line of credit, by a lender(s) with respect
to certain real property, exclusive of any
prior liens on or interests in such
property.
(d) Credit secured by real property
means a loan or line of credit secured
wholly or substantially by a lien on or
interest in real property for which the
lien or interest is central to the
extension of the credit (i.e., the lender
would not have extended credit to the
borrower in the same amount or on the
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) Loan origination means the time of
inception of an extension of credit.
(f) Appraised value or evaluation
means an opinion or estimate of the
market value of adequately described
real property as of a specific date,
supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the Federal
Reserve's appraisal regulations, subpart
G to part 225 of this chapter, and
guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) Financially-responsible guarantor
means a guarantor who has both the
financial capacity and willingness to
provide support for an extension of
credit, and whose guarantee does in fact
support, either in whole or in part,
repayment of the extended credit before
or upon maturity.
(h) l-to-4 fam ily residential property
means residential property containing
less than five individual dwelling units.
(i) M ultifam ily residential property
means residential property containing
five or more individual dwelling units.
(j) Raw Land Loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
31604________ Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
(k) Pre-Construction Development
Loan means an extension of credit,
whether or not secured by real property,
for the purpose of improving vacant land
prior to the erection of structures. The
improvement of vacant land may
include the laying or placement of
sewers, water pipes, utility cables,
streets, and other infrastructure
necessary for future development.
tl) Construction and Land
Development Loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(m) Improved Property Loan means an
extension of credit secured by one of the
following types of real property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(n) l-to-4 Family Residential Property
Loan means an extension of credit
secured by owner-occupied l-to-4 family
residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained prequalified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a category 3,
50 percent risk weight loan under the
risk-based capital guidelines set forth in
appendix A to part 208.
(o) The term Home Equity Loan
means an extension of credit secured by
a junior lien on or subordinated interest
in l-to-4 family residential property.
(p) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 208.51(b) of
this part.
§ 208.51 Real estate lending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this section are satisfied.
(b) Loan-to-value ratios. An extension
of credit subject to this section, together
with any senior liens on or interests in
the real property securing or being
improved by such credit, must not
exceed any of the following percentages
of the real property’s appraised value or
evaluation, as appropriate, determined
at the time of loan origination:
(1) For a Raw Land Loan, 60 percent
of the appraised value or evaluation;
(2) For a Pre-Construction
Development Loan, 65 percent of the
appraised value or evaluation;
(3) For a Construction and Land
Development Loan, 75 percent of the
appraised value or evaluation if it
involves a project that:
(i) Will be at least 65 percent owneroccupied;
(ii) Is at least 65 percent pre-sold to a
buyer(s) with sufficient financial
capacity to complete the purchase
transaction;
(iii) Is at least 65 percent pre-leased to
a tenant(s) with sufficient financial
capacity to fulfill all material obligations
under the lease;
(iv) Has obtained a valid and binding
take-out loan commitment from an
established lender for its permanent
financing;
(v) Has entered into a valid and
binding agreement with a company that
has an established reputation and
sufficient managerial and financial
resources to use or operate the property
as a business and to fulfill all material
obligations under the agreement; or
(vi) Has provided a legally
enforceable guarantee(s) from a
financially-responsible guarantor(s);
(4) For all other Construction and
Land Development Loans, 65 percent of
the appraised value or evaluation;
(5) For an Improved Property Loan
that amortizes over the life of the loan,
75 percent of the appraised value or
evaluation;
(6) For an Improved Property Loan
that does not amortize over the life of
the loan, 65 percent of the appraised
value or evaluation;
(7) For a l-to-4 Family Residential
Property Loan, 95 percent of the
appraised value or evaluation, with any
amount exceeding 80 percent of the
appraised value or evaluation covered
by private mortgage insurance
acceptable to the Board;
(8) For a l-to-4 Family Residential
Property Loan without private mortgage
insurance, 80 percent of the appraised
value or evaluation;
(9) For a Home Equity Loan, 95
percent of the appraised value or
evaluation, with any amount exceeding
80 percent of appraised value or
evaluation covered by private mortgage
insurance acceptable to the Board;
(10) For a Home Equity Loan without
private mortgage insurance, 80 percent
of the appraised value or evaluation.
(c) Permissible nonconforming real
estate loans. An insured depository
institution may make real estate loans
that do not conform to the loan-to-value
ratio limitations contained in paragraph
(b) of this section provided that the
aggregate amount of all such real estate
loans does not exceed 15 percent of the
institution’s total capital, as defined in
Appendix A to part 208, and further
provided that such nonconforming real
estate loans are reported as lending
exceptions to the institution’s board of
directors.
(d) Excluded transactions. The
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions
of credit:
(1) Guaranteed or insured by the
United States government or an agency
thereof, or backed by the full faith and
credit of a state government;
(2) Facilitating the sale of real estate
acquired by the insured depository
institution, through foreclosure or
otherwise, in the ordinary course of
collecting a debt previously contracted
in good faith;
(3) Where the real property is taken as
additional collateral solely through an
abundance of caution by the lender, and
the lender does not look principally to
the real property as security for the
extension of credit;
(4) Renewed, refinanced, or
restructured by the original lenders), or
its successors), to the same borrower(s)
without the advancement of new funds;
or
(5) Originated prior to [INSERT THE
EFFECTIVE DATE OF THE FINAL
RULE].
PART 225—BANK HOLDING
COMPANIES AND CHANGE IN BANK
CONTROL
1. The authority citation for part 225 is
revised to read as follows:
Authority: 12 U.S.C. 1817(j)(13), 1818(b),
1828(0), 1831i, 1843(c)(8), 1844(b), 1972(1),
3106, 3108, 3907, 3909, 3310, 3331-3351, and
sec. 306 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (Pub. L
102-242,105 Stat. 2236 (1991)).
2. Concluding text is added at the end
of paragraph (b)(1) of § 225.25 to read as
follows:
§ 225.25 Ust of permissible nonbanking
activities.
*
*
*
*
*
(b)(1) * * *
All loans or other extensions of credit
made or acquired by a bank holding
company or any non-bank subsidiary
thereof, if secured by real property or
made for the purpose of financing
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules________ 31605
permanent improvements to real
property, must conform to the Real
Estate Lending Loan-To-Value
Restrictions set forth in § 208.51 of the
Board’s Regulation H, 12 CFR part 208.
*
»
*
*
*
Dated: June 26,1992.
Jennifer J. Johnson,
Associate Secretary of the Board of
Governors of the Federal Reserve System.
Federal Deposit Insurance Corporation 12
CFR Chapter III
For the reasons set forth in the
preamble, the Board of Directors of the
FDIC proposes to amend 12 CFR chapter
III, subchapter B as set forth below:
1.
For Alternative 1, part 365 is
proposed to be added to read as follows:
PART 365—REAL ESTATE LENDING
STANDARDS
Sec.
385.1 Purpose and scope.
365.2 Definitions.
365.3 Real estate lending loan-to-value
restrictions.
Authority: 12 U.S.C. 1828(o).
§ 365.1
Purpose and scope.
This p art issued pursuant to section
304 of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
12 U.S.C 1828(o), prescribes ranges of
maximum permissible loan-to-value
ratios to be used by insured state banks
that are not members of the Federal
Reserve System in establishing their
own internal loan-to-value ratios for real
estate loans subject to this part.
§ 365.2 Definitions.
For purposes of this part:
(a) The term loan-to-value ratio
means the ratio that is derived at the
time of loan origination by dividing an
extension of credit by the appraised
value or evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
extension of credit in determining the
loan-to-value ratio.
(b) The term real property or real
estate means an identified or
identifiable parcel or tract of land,
together with any improvements and
certain rights appurtenant, including any
easements, servitudes, rights of way,
undivided or future interests, fixtures
and other similar interests, but not
including any licenses, profits a prendre,
mineral rights, timber rights, growing
crops, riparian and other water rights,
light and air rights, and other similar
interests.
(c) The term extension o f credit means
the total lending commitment, whether
by loan or line of credit, by a lenders)
with respect to certain real property,
exclusive of any prior liens on or
interests in such property.
(d) The term credit secured by real
property means a loan or line of credit
secured wholly or substantially by a lien
on or interest in real property for which
the lien or interest is central to the
extension of the credit (i.e., the lender
would not have extended credit to the
borrower in the same amount or on the
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) The term loan orgination means
the time of inception of an extension of
credit.
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the FDIC’s
appraisal regulations (12 CFR part 323)
and guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements;
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(h) The term m ultifam ily residential
property means residential property
containing five or more individual
dwelling units.
(i) The term raw land loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(j) The term pre-construction
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(k) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(1) Improved property loan means an
extension of credit secured by one of the
following types of real property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(m) l-to-4 fam ily residential property
loan means an extension of credit
secured by owner-occupied l-to-4 family
residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained pre-qualified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a category 3,
50 percent risk weight loan under the
risk-based capital guidelines set forth in
Appendix A to part 325 of this chapter.
(n) Home equity loan means an
extension of credit secured by a junior
lien on or subordinated interest in l-to-4
family residential property.
(o) Nonconforming real estate loan
means an extension of credit secured by
real property, or an extension of credit
for the purpose of financing permanent
improvements to real property, that does
not satisfy the terms and limitations of
§ 365.3 of this part.
§ 365.3 Real estate lending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this part are satisfied.
(b) Loan-to-value ratios. (1) Each
insured depository institution shall
establish internal loan-to-value ratio
limits within or below the range of
maximum permissible loan-to-value
ratios contained in this paragraph for
the categories of real estate loans
specified.
(2) For all categories of real estate
loans, the low end of each supervisory
31606_______ Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
range of maximum permissible loan-tovalue ratios is considered to be an
appropriate benchmark loan-to-value
ratio lending limit For any particular
category of real estate loans, an insured
depository institution may establish an
internal loan-to-value ratio lending limit
above the lower end of the supervisory
range of maximum permissible loan-tovalue ratios if the institution's
demonstrated expertise in that
particular type of lending, its
assessment of local and regional market
conditions, its capital position and asset
quality, and other pertinent factors
clearly justify such a higher limit.
(3) Each insured depository institution
shall specify in writing the criteria used
by the institution to qualify loans at
loan-to-value ratio levels up to the
institution’s established internal loan-tovalue ratio lending limits.
(4) For each category of real estate
loans, an insured depository institution
shall only make a loan at the higher end
of the supervisory range of loan-to-value
ratios if significant positive features that
would mitigate the higher level of risk
are present.
(5) An insured depository institution’s
internal loan-to-value ratio standards
shall be reviewed and approved at least
annually by the institution’s board of
directors as being consistent with the
safe and sound operation of the
institution. These standards shall be
subject to examiner review in order to
determine the institution’s compliance
with this part.
(6) An extension of credit subject to
this p art together with any senior liens
on or interests in the real property
securing or being improved by such
credit; must not exceed any applicable
internal loan-to-value ratio lending limit
established by the institution under this
part.
(7) Subject to the other provisions of
this part, each insured depository
institution shall establish, within or
below the following supervisory ranges
of maximum permissible loan-to-value
ratios, internal loan-to-value ratio limits
for the following types of loans, based
on the appraised value or evaluation, as
appropriate, of the real property
securing or being improved by the loan,
determined at the time of loan
origination;
(i) For raw land loans, the maximum
permissible loan-to-value ratio shall not
exceed 50 percent to 65 percent of the
appraised value or evaluation;
(ii) For pre-construction development
loans, the maximum permissible loan-tovalue ratio shall not exceed 55 percent
to 70 percent of the appraised value or
evaluation;
(5) Originated prior to [INSERT THE
(iii) For construction and land
EFFECTIVE DATE OF THE FINAL
development loans, the maximum
permissible loan-to-value ratio shall not RULE].
exceed 65 percent to 80 percent of the
2.
For Alternative 2, Part 365 is
appraised value or evaluation;
proposed to be added to read as follows:
(iv) For improved property loans, the
PART 365—REAL ESTATE LENDING
maximum permissible loan-to-value
STANDARDS
ratio shall not exceed 65 percent to 80
percent of the appraised value or
Sec.
evaluation;"
365.1 Purpose and scope.
(v) For l-to-4 family residential
365.2 Definitions.
property loans, the maximum
365.3 Real estate lending loan-to-value
permissible loan-to-value ratio shall not
restrictions.
exceed 80 percent to 95 percent of the
Authority: 12 U.S.C. 1828(o).
appraised value or evaluation;
§ 365.1 Purpose and scope.
(vi) For home equity loans, the
maximum permissible loan-to-value
This part, issued pursuant to section
ratio shall not exceed 80 percent to 95
304 of the Federal Deposit Insurance
percent of the appraised value or
Corporation Improvement Act of 1991,
evaluation; and
12 U.S.C. 1828(o), prescribes maximum
(vii) For l-to-4 family residential
loan-to-value ratios applicable to real
property loans and home equity loans,
estate lending by insured state banks
any portion of these loans exceeding 85 that are not members of the Federal
percent of the appraised value or
Reserve System.
evaluation of the real property securing
§ 365.2 Definitions.
the loan must be covered by private
For purposes of this part:
mortgage insurance acceptable to the
(a) The term loan-to-value ratio
FDIC.
means the ratio that is derived at the
(c) Permissible nonconforming real
time of loan origination by dividing an
estate loans. An insured depository
extension of credit by the appraised
institution may make real estate loans
value or evaluation, whichever may be
that do not conform to the institution’s
appropriate, of the property securing or
internal loan-to-value ratio limits
being improved by the extension of
established pursuant to this part,
credit. However, if a lender holds a
provided that the aggregate amount of
junior lien on or a subordinate interest
all such real estate loans does not
in the real property, the total amount of
exceed 15 percent of the institution's
all senior liens on or interests in the
total capital, as defined in Appendix A
property must be aggregated with the
to part 325 of this chapter, and further
extension of credit in determining the
provided that such nonconforming real
loan-to-value ratio.
estate loans are reported as lending
(b) The term real property or real
exceptions to the institution’s board of
estate means an identified or
directors.
identifiable parcel or tract of land,
(d) Excluded transactions. The
together with any improvements and
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions certain rights appurtenant, including any
easements, servitudes, rights of way,
of credit:
undivided or future interests, fixtures
(1) Guaranteed or insured by the
and other similar interests, but not
United States government or an agency
including any licenses, profits a prendre,
thereof, or backed by the full faith and
mineral rights, timber rights, growing
credit of a state government;
crops, riparian and other water rights,
(2) Facilitating the sale of real estate
light and air rights, and other similar
acquired by the insured depository
interests.
institution, through foreclosure or
(c) The term extension o f credit means
otherwise, in the ordinary course of
the total lending commitment, whether
collecting a debt previously contracted
by loan or line of credit, by a lender(s)
in good faith;
(3) Where the real property is taken as with respect to certain real property,
exclusive of any prior liens on or
additional collateral solely through an
abundance of caution by the lender, and interests in such property.
(d) The term credit secured by real
the lender does not look principally to
property means a loan or line of credit
the real property as security for the
secured wholly or substantially by a lien
extension of credit;
on or interest in real property for which
(4) Renewed, refinanced, or
restructured by the original lender(s), or the lien or interest is central to the
extension of the credit (i.e., the lender
its successor(s), to the same
would not have extended credit to the
borrower(s), without the advancement
borrower in the same •amount or on the
of new funds; or
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) The term loan origination means
the time of inception of an extension of
credit.
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the FDIC's
appraisal regulations (12 CFR part 323)
and guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements;
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
«and cash flow.
(g) The term financially-responsible
guarantor means a guarantor who has
both the financial capacity and the
willingness to provide support for an
extension of credit, and whose
guarantee does in fact support, either in
whole or in part, repayment of the
extended credit before or upon maturity.
(h) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(i) The term m ultifam ily residential
property means residential property
containing five or more individual
dwelling units.
(j) The term raw land loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(k) The term pre-construction
development loan means an extension
of credit whether or not secured by real
property, for the purpose of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(1) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development
(m) The term improved property loan
means an extension of credit secured by
one of the following types of real
property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(n) The term l-to4 fam ily residential
property loan means an extension of
credit secured by owner-occupied l-to-4
family residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained pre-qualified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a category 3,
50 percent risk weight loan under the
risk-based capital guidelines set forth in
Appendix A to part 325 of this chapter.
(0) The term home equity loan means
an extension of credit secured by a
junior lien on or subordinated interest in
l-to-4 family residential property.
(p) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of 8 365.3 of this
part.
§ 365.3 Real estate lending loan-to-value
restrictions.
(a) General rule. An insured
depository institution shall not extend
credit secured by real property, or
extend credit for the purpose of
financing permanent improvements to
real property, unless the requirements
set forth in this part are satisfied.
(b) Loan-to-value ratios. An extension
of credit subject to this p art together
with any senior liens on or interests in
the real property securing or being
improved by such credit, must not
exceed any of the following percentages
of the real property’s appraised value or
evaluation, as appropriate, determined
at the time of loan origination:
(1) For a raw land loan, 60 percent of
the appraised value or evaluation;
(2) For a pre-construction
development loan, 65 percent of the
appraised value or evaluation;
(3) For a construction and land
development loan, 75 percent of the
31607
appraised value or evaluation if it
involves a project that;
(i) Will be at least 65 percent owneroccupied;
(ii) Is at least 65 percent pre-sold to a
buyer(s) with sufficient financial
capacity to complete the purchase
transaction;
(iii) Is at least 65 percent pre-leased to
a tenant(s) with sufficient financial
capacity to fulfill all material obligations
under the lease;
(iv) Has obtained a valid and binding
take-out loan commitment from an
established lender for its permanent
financing;
(v) Has entered into a valid and
binding agreement with a company that
has an established reputation and
sufficient managerial and financial
resources to use or operate the property
as a business and to fulfill all material
obligations under the agreement; or
(vi) Has provided a legally
enforceable guarantee(s) from a
financially-responsible guarantors);
(4) For all other construction and land
development loans, 65 percent of the
appraised value or evaluation;
(5) For an improved property loan that
amortizes over the life of the loan, 75
percent of the appraised value or
evaluation;
(6) For an improved property loan that
doe3 not amortize over the life of the
loan, 65 percent of the appraised value
or evaluation;
(7) For a l-to-4 family residential
property loan, 95 percent of the
appraised value or evaluation, with any
amount exceeding 80 percent of the
appraised value or evaluation covered
by private mortgage insurance
acceptable to the FDIC;
(8) For a l-to-4 family residential
property loan without private mortgage
insurance, 80 percent of the appraised
value or evaluation;
(9) For a home equity loan, 95 percent
of the appraised value or evaluation,
with any amount exceeding 80 percent
of the appraised value or evaluation
covered by private mortgage insurance
acceptable to the FDIC; and
(10) For a home equity loan without
private mortgage insurance, 80 percent
of the appraised value or evaluation.
(c) Permissible nonconforming real
estate loans. An insured depository
institution may make real estate loans
that do not conform to the loan-to-value
ratio limitations contained in paragraph
(b) of this section provided that the
aggregate amount of all such real estate
loans does not exceed 15 percent of the
institution’s total capital, as defined in
Appendix A to part 325 of this chapter,
and further provided that such
31608________ Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
nonconforming real estate loans are
associations and their subsidiaries in
reported as lending exceptions to the
establishing their own internal loan-toinstitution’s board of directors.
value ratios for real estate loans subject
(d) Excluded transactions. The
to these sections.
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions § 563.101 Real estate lending standards;
definitions.
of credit:
For the purposes of this section and
(1) Guaranteed or insured by the
§ § 563.100 and 563.102 of this subpart:
United States government or an agency
thereof, or backed by the full faith and
(a) Loan-to-value ratio means the
credit of a state government;
ratio that is derived at the time of loan
(2) Facilitating the sale of real estate
origination by dividing an extension of
acquired by the insured depository
credit by the appraised value or
institution, through foreclosure or
evaluation, whichever may be
otherwise, in the ordinary course of
appropriate, of the property securing or
collecting a debt previously contracted
being improved by the extension of
in good faith;
credit. However, if a lender holds a
(3) Where the real property is taken as junior lien on or a subordinate interest
additional collateral solely through an
in the real property, the total amount of
abundance of caution by the lender, and all senior liens on or interests in the
the lender does not look principally to
property must be aggregated with the
the real property as security for the
extension of credit in determining the
extension of credit;
loan-to-value ratio.
(4) Renewed, refinanced, or
(b) Real property or real estate means
restructured by the original lender(s), or an identified or identifiable parcel or
its 8uccessor(s), to the same .
tract of land, together with any
borrower(s), without the advancement
improvements and certain rights
of new funds; or
appurtenant, including any easements,
(5) Originated prior to [INSERT THE
servitudes, rights of way, undivided or
EFFECTIVE DATE OF THE FINAL
future interests, fixtures and other
RULE].
similar interests, but not including any
Dated at Washington, DC, this 23rd day of
licenses, profits a prendre, mineral
June, 1992.
rights, timber rights, growing crops,
By order of the Board of Directors.
riparian and other water rights, light and
Federal Deposit Insurance Corporation.
air rights, and other similar interests.
Hoyle L. Robinson,
(c) Extension o f credit means the total
lending commitment, whether by loan or
Executive Secretary.
line of credit, by a lender(s) with respect
Office of Thrift Supervision
to certain real property, exclusive of any
12 CFR Chapter V
prior liens on or interests in such
For the reasons set forth in the
property.
preamble, The Office of Thrift
(d) Credit secured by real property
Supervision hereby proposes to amend
means a loan or line of credit secured
part 563, subchapter D, chapter V, title
wholly or substantially by a lien on or
12 of the Code of Federal Regulations, as interest in real property for which the
follows:
lien or interest is central to the
extension of credit (i.e., the lender
PART 563—OPERATIONS
would not have extended credit to the
1. The authority citation for part 563 is borrower in the same amount or on the
same terms in the absence of the lien on
revised to read as follows:
or interest in the property). Credit is
Authority: 12 U.S.C. 1462.1462a, 1463,1464,
secured by real property
1467a, 1468; 12 U.S.C. 1817,1828:12 U.S.C.
3806: 42 U.S.C. 4106; Sec. 304, Pub. L. 102-242, notwithstanding the existence of any
other liens on or interests in the
105 Stat. 2236.
property, whether prior, existing, or
2. For Alternative 1, new §§ 563.100,
subsequently acquired.
563.101, and 563.102 are proposed to be
(e) Loan origination means the time of
added to subpart D of part 563 to read
inception of an extension of credit.
as follows:
(f) Appraised value or evaluation
means an opinion or estimate of the
§ 563.100 Real estate lending standards;
purpose and scope.
market value of adequately described
real property as of a specific date,
This section, and § § 563.101 and
supported by the presentation and
563.102 of this subpart, issued pursuant
analysis of relevant market information,
to section 304 of the Federal Deposit
Insurance Corporation Improvement Act in a written statement, and which—
(1) Is independently and impartially
of 1991,12 U.S.C. 1828(o), prescribe
ranges of maximum permissible loan-to- prepared in accordance with the Office
of Thrift Supervision’s appraisal
value ratios to be used by savings
regulations (12 CFR part 564) and
guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension of credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(h) The term multifam ily residential
property means residential property
containing five or more individual
dwelling units.
(i) The term raw land loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(j) The term pre-construction
development loan means an extension
of credit, whether or not secured by real
property, for the purposes of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement of sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(k) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(1) The term improved property loan
means an extension of credit secured by
one of the following types of real
property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property,
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(m) The term l-to-4 fam ily residential
property loan means an extension of
credit secured by owner-occupied l-to-4
family residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained pre-qualified permanent
financing; and
Federal Register / Vol. 57, No. 137 / Thursday, July 10, 1992 / Proposed Rules________31609
(2) A construction loan to a developer
or builder that constitutes a 50 percent
risk weight loan under the risk-based
capital guidelines set forth in part 567 of
this chapter.
(n) The term hatne equity loan means
an extension of credit secured by a
junior lien on or subordinated interest in
l-to-4 family residential property.
(o) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension of credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 563.102 of this
subpart.
directors as being consistent with the
safe and sound operation of the
association. These standards shall be
subject to examiner review in order to
determine the association’s compliance
with this section.
(6) An extension of credit subject to
this section, together with any senior
liens on or interests in the real property
securing or being improved by such
credit, must not exceed any applicable
internal loan-to-value ratio lending limit
established by the savings association
under this section.
(7) Subject to the other provisions of
this section, each savings association
shall establish, within or below the
following supervisory ranges of
§ 563.102 Real estate lending; loan-tomaximum permissible loan-to-value
value restrictions.
ratios, internal loan-to-value ratio limits
(a) General rule. A savings
for the following types of loans, based
association shall not extend credit
on the appraised value or evaluation, as
secured by real property, or extend
appropriate, of the real property
credit for the purpose of financing
securing or being improved by the loan,
permanent improvements to real
determined at the time of loan
property, unless the requirements set
origination:
forth in this section are satisfied.
(i) For raw land loans, the maximum
(b) Loan-to-value ratios. (1) Each
permissible loan-to-value ratio shall not
savings association shall establish
exceed 50 percent to 65 percent of the
internal loan-to-value ratio limits within appraised value or evaluation;
or below the range of maximum
(ii) For pre-construction development
permissible loan-to-value ratios
loans, the maximum permissible loan-tocontained in this paragraph for the
value ratio shall not exceed 55 percent
categories of real estate loans specified. to 70 percent of the appraised value or
(2) For all categories of real estate
evaluation;
loans, the low end of each supervisory
(iii) For construction and land
range of maximum permissible loan-todevelopment loans, the maximum
value ratios is considered to be an
permissible loan-to-value ratio shall not
appropriate benchmark loan-to-value
exceed 65 percent to 80 percent of the
ratio lending limit. For any particular
appraised value or evaluation;
category of real estate loans, a savings
(iv) For improved property loans, the
association may establish an internal
maximum permissible loan-to-value
loan-to-value ratio lending limit above
ratio shall not exceed 65 percent to 80
the lower end of the supervisory range
percent of the appraised value or
of maximum permissible loan-to-value
evaluation;
ratios if the savings association’s
(v) For l-to-4 family residential
demonstrated expertise in that
property loans, the maximum
permissible loan-to-value ratio shall not
particular type of lending, its
assessment of local and regional market exceed 80 percent to 95 percent of the
conditions, its capital position and asset appraised value or evaluation;
(vi) For home equity loans, the
quality, and other pertinent factors
maximum permissible loan-to-value
clearly justify such a higher limit.
(3) Each savings association shall
ratio shall not exceed 80 percent to 95
specify in writing the criteria used by
percent of the appraised value or
the association to qualify loans at loanevaluation; and
(vii) For l-to-4 family residential
to-value ratio levels up to the
property loans and home equity loans,
association’s established internal loanany portion of these loans exceeding 85
to-value ratio lending limits.
percent of the appraised value or
(4) For each category of real estate
evaluation of the real property securing
loans, a savings association shall only
the loan must be covered by private
make a loan at the higher end of the
supervisory range of loan-to-value ratios mortgage insurance acceptable to the
OTS.
if significant positive features that
(c) Permissible nonconforming real
would mitigate the higher level of risk
estate loans. A savings association may
are present.
make real estate loans that do not
(5) A savings association’s internal
conform to the association’s internal
loan-to-value ratio standards shall be
loan-to-value ratio limits established
reviewed and approved at least
pursuant to this section, provided that
annually by the association’s board of
the aggregate amount of all such real
estate loans does not exceed 15 percent
of the association’s total capital, as
defined in part 567 of this chapter, and
further provided that such
nonconforming real estate loans are
reported as lending exceptions to the
association's board of directors.
(d) Excluded transactions. The
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions
of credit:
(1) Guaranteed or insured by the
United States government or an agency
thereof, or backed by the full faith and
credit of a state government;
(2) Facilitating the sale of real estate
acquired by the savings association,
through foreclosure or otherwise, in the
ordinary course of collecting a debt
previously contracted in good faith;
(3) Where the real property is taken as
additional collateral solely through an
abundance of caution by the lender, and
the lender does not look principally to
the real property as security for the
extension of credit;
(4) Renewed, refinanced, or
restructured by the original lender(s), or
its successor(s), to the same
borrower(s), without the advancement
of new funds; or
(5) Originated prior to [INSERT THE
EFFECTIVE DATE OF THE FINAL
RULE].
3. For Alternative 2, new § § 563.100,
563.101, and 563.102 are proposed to be
added to subpart D of part 563 to read
as follows:
§ 563.100 Real estate lending standards;
purpose and scope.
This section, and § § 563.101 and
563.102 of this subpart, issued pursuant
to section 304 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991,12 U.S.C. 1828(o), prescribe
maximum loan-to-value ratios
applicable to real estate lending by
savings associations and their
subsidiaries.
§ 563.101 Real estate lending standards;
definitions.
For the purposes of this section and
§§ 563.100 and 563.102 of this subpart:
(a) The term loan-to-value ratio
means the ratio that is derived at the
time of loan origination by dividing an
extension of credit by the appraised
value or evaluation, whichever may be
appropriate, of the property securing or
being improved by the extension of
credit. However, if a lender holds a
junior lien on or a subordinate interest
in the real property, the total amount of
all senior liens on or interests in the
property must be aggregated with the
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Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
extension of credit in determining the
loan-to-value ratio.
(b) The term real property or real
estate means an identified or
identifiable parcel or tract of land,
together with any improvements and
certain rights appurtenant, including any
easements, servitudes, rights of way,
undivided or future interests, fixtures
and other similar interests, but not
including any licenses, profits a prendre,
mineral rights, timber rights, growing
crops, riparian and other water rights,
light and air rights, and other similar
interests.
(c) The term extension o f credit means
the total lending commitment, whether
by loan or fine of credit, by a lender(s)
with respect to certain real property,
exclusive of any prior liens on or
interests in such property.
(d) The term credit secured by real
property means a loan or line of credit
secured wholly or substantially by a lien
on or interest in real property for which
the lien o r interest is central to the
extension of credit (i.e., the lender
would not have extended credit to the
borrower in the same amount or on the
same terms in the absence of the lien on
or interest in the property). Credit is
secured by real property
notwithstanding the existence of any
other liens on or interests in the
property, whether prior, existing, or
subsequently acquired.
(e) The term loan origination means
the time of inception of an extension of
credit.
(f) The term appraised value or
evaluation means an opinion or estimate
of the market value of adequately
described real property as of a specific
date, supported by the presentation and
analysis of relevant market information,
in a written statement, and which—
(1) Is independently and impartially
prepared in accordance with the Office
of Thrift Supervision’s appraisal
regulations (12 CFR part 564) and
guidance; and
(2) Reflects a market value that—
(i) For development and construction
lending generally, includes the value of
anticipated improvements; and
(ii) For land development loans,
includes the value of the parcel of land
and the value of anticipated
improvements to be financed with the
proposed extension o f credit; and
(iii) For construction and development
loans, considers, on a discounted basis,
the estimated value upon completion of
the planned construction or
development, at stabilized occupancy
and cash flow.
(g) The term financially-responsible
guarantor means a guarantor who has
both the financial capacity and
willingness to provide support for an
extension of credit, and whose
guarantee does in fact support, either in
whole or in part, repayment of the
extended credit before or upon maturity.
(h) The term l-to-4 fam ily residential
property means residential property
containing less than five individual
dwelling units.
(i) The term m ultifam ily residential
property means residential property
containing five or more individual
dwelling units.
(i) The term raw land loan means an
extension of credit secured by real
property for the purpose of acquiring or
holding vacant land.
(k) The term pre-construction
development loan means an extension
of credit, whether or not secured by real
property, for the purposes of improving
vacant land prior to the erection of
structures. The improvement of vacant
land may include the laying or
placement o'f sewers, water pipes, utility
cables, streets, and other infrastructure
necessary for future development.
(1) The term construction and land
development loan means an extension
of credit, whether or not secured by real
property, for the purpose of erecting or
rehabilitating buildings or other
structures, including any infrastructure
necessary for development.
(m) The term improved property loan
means an extension of credit secured by
one of the following types of real
property:
(1) Farmland committed to ongoing
agricultural production;
(2) Non-owner-occupied l-to-4 family
residential property;
(3) Multifamily residential property;
(4) Completed commercial property; or
(5) Other income-producing property
that has been completed and is
available for occupancy and use.
(n) The term l-to-4 fam ily residential
property loan means an extension of
credit secured by owner-occupied l-to-4
family residential property, including:
(1) A construction loan to a
prospective owner-occupant who has
obtained pre-qualified permanent
financing; and
(2) A construction loan to a developer
or builder that constitutes a 90 percent
risk weight loan under the risk-based
capital guidelines set forth in part 567 of
this chapter.
(o) The term home equity loan means
an extension of credit secured by a
junior lien on or subordinated interest in
l-to-4 family residential property.
(p) The term nonconforming real
estate loan means an extension of credit
secured by real property, or an
extension o f credit for the purpose of
financing permanent improvements to
real property, that does not satisfy the
terms and limitations of § 563.102 of this
subpart.
§ 563.102 Real estate lending loan-tovalue restrictions.
(a) General rule. A savings
association shall not extend credit
secured by real property, or extend
credit for the purpose of financing
permanent improvements to real
property, unless the requirements set
forth in this section are satisfied.
(b) Loan-to-value ratios. An extension
of credit subject to this section, together
with any senior liens on or interests in
the real property securing or being
improved by such credit, must not
exceed any of the following percentages
of the real property’s appraised value or
evaluation, as appropriate, determined
at the time of loan origination:
(1) For a raw land loan, 60 percent of
the appraised value or evaluation;
(2) For a pre-construction
development loan, 65 percent of the
appraised value or evaluation;
(3) For a construction and land
development loan, 75 percent of the
appraised value or evaluation if it
involves a project that:
(i) Will be at least 65 percent owneroccupied;
(ii) Is at least 65 percent pre-sold to a
buyer(s) with sufficient financial
capacity to complete the purchase
transaction;
(iii) Is at least 65 percent pre-leased to
a tenant(s) with sufficient financial
capacity to fulfill all material obligations
under the lease;
(iv) Has obtained a valid and binding
take-out loan commitment from an
established lender for its permanent
financing;
(v) Has entered into a valid and
binding agreement with a company that
has an established reputation and
sufficient managerial and financial
resources to use or operate the property
as a business and to fulfill all material
obligations under the agreement; or
(vi) Has provided a legally
enforceable guarantee(s) from a
financially-responsible guarantors);
(4) For all other construction and land
development loans, 65 percent of the
appraised value or evaluation;
(5) For an improved property loan that
amortizes over die life o f the loan, 75
percent of the appraised value or
evaluation;
(8); For an improved property loan that
does not amortize over the life: of the
loan, 65 percent of die appraised value
or evaluation;
(7) For a l-to-4 family residential
properly loan, 95 percent of the
Federal Register / Vol. 57, No. 137 / Thursday, July 16, 1992 / Proposed Rules
appraised value or evaluation with any
amount exceeding 80 percent of the
appraised value or evaluation covered
by private mortgage insurance
acceptable to the OTS;
(8) For a l-to-4 family residential
property loan without private mortgage
insurance, 80 percent of the appraised
value or evaluation;
(9) For a home equity loan, 95 percent
of the appraised value or evaluation
with any amount exceeding 80 percent
of appraised value or evaluation
covered by private mortgage insurance
acceptable to the OTS; and
(10) For a home equity loan without
private mortgage insurance, 80 percent
of the appraised value or evaluation.
(c) Permissible nonconforming real
estate loans. A savings association may
make real estate loans that do not
conform to the loan-to-value ratio
limitations contained in paragraph (b) of
this section provided that the aggregate
amount of all such real estate loans does
not exceed 15 percent of the
association's total capital, as defined in
part 567 of this chapter, and further
provided that such nonconforming real
estate loans are reported as lending
exceptions to the association's board of
directors.
(d) Excluded transactions. The
provisions of paragraphs (b) and (c) of
this section shall not apply to extensions
of credit:
(1) Guaranteed or insured by the
United States government or an agency
thereof, or backed by the full faith and
credit of a state government;
(2) Facilitating the sale of real estate
acquired by the savings association,
through foreclosure or otherwise, in the
ordinary course of collecting a debt
previously contracted in good faith;
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(3) Where the real property is taken as
additional collateral solely through an
abundance of caution by the lender, and
the lender does not look principally to
the real property as security for the
extension of credit;
(4) Renewed, refinanced or
restructured by the original lender(s), or
its successor(s), to the same
borrower(s), without the advancement
of new funds; or
(5) Originated prior to [INSERT THE
EFFECTIVE DATE OF THE FINAL
RULE].
Dated: June 29,1992.
By the Office of Thrift Supervision.
Timothy Ryan,
Director.
[FR Doc. 92-16069 Filed 7-15-92; 8:45 am]
BILLING CODE 4 8 10-33-M 621Q -01-M 6 7 M -0 1 -M 6 7 2 0 01-M
@FedFRASER