The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
Federal Reserve Bank
OF DALLAS
ROBERT
D. M C T E E R , J R .
P R E S ID E N T
AND
C H IE F E X E C U T IV E
O F F IC E R
DALLAS, TEXAS 7 5 2 2 2
January 19, 1993
Notice 93-08
TO:
The Chief Executive Officer of each
member bank and others concerned in
the Eleventh Federal Reserve District
SUBJECT
Final Amendments and Guidelines
to Regulation H (Membership of State Banking Institutions
in the Federal Reserve System)
DETAILS
The Federal Reserve Board has announced adoption of final amendments
and guidelines to Regulation H (Membership of State Banking Institutions in
the Federal Reserve System). The amendments and guidelines implement uniform
real estate lending standards as mandated by Section 304 of the Federal
Deposit Insurance Corporation Improvement Act of 1991.
The amendments prescribe standards for extensions of credit secured
by liens on real estate or made for the purpose of financing permanent
improvements to real estate. The standards were developed in consultation
with the Office of the Comptroller of the Currency, the Office of Thrift
Supervision, and the Federal Deposit Insurance Corporation.
The uniform regulations become effective March 19, 1993.
ATTACHMENT
A copy of the agen ci e s’ notice as it appears on pages 62890-902,
Vol. 57, No. 252, of the Federal Register dated December 31, 1992, is
attached.
MORE INFORMATION
For more information, please contact Daniel Kirkland at (214)
922-6256. For additional copies of this B a n k ’s notice, please contact the
Public Affairs Department at (214) 922-5254.
Sincerely yours,
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 Intraslate (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)
62890 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
DEPARTMENT OF THE TREASURY
Office of the Comptroller of the
Currency
12CFR Part 34
[Docket No. 92-27]
FEDERAL RESERVE SYSTEM
12CFR Part 208
[Regulation H; Docket No. R-0765]
FEDERAL DEPOSIT INSURANCE
CORPORATION
12CFR Part 385
RIN 3064-AB05
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12CFR Parts 545 and 563
[Docket No. 92-484]
RIN 1550-AA56
Real Estate Lending Standards
Federal Deposit Insurance
Corporation: Board of Governors of the
Federal Reserve System: Office of the
Comptroller of the Currency, Treasury:
Office of Thrift Supervision, Treasury.
ACTION: Final rule.
AGENCIES:
SUMMARY: The Federal Deposit
Insurance Corporalion (FDIC). the Board
of Governors of the Federal Reserve
System (Board), the Office of the
Comptroller of the Currency (OCC), and
the Office of Thrift Supervision (OTS)
(collectively, the agencies) have adopted
a final uniform rule on real estate
lending by insured depository
institutions. The agencies are taking this
action as required by section 304 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991. The final rale
prescribes real estate lending standards
that require each insured depository
institution to adopt and m a i n t a i n
comprehensive written real estate
lending policies that are consistent with
safe and sound banking practices. The
policies must address certain lending
considerations, including loan-to-value
limits, loan adm inistration procedures,
portfolio diversification standards, and
documentation, approval, and reporting
requirements. The policies must also be
appropriate to the size of the institution
and the nature and scope o f its
operations, and must be reviewed and
approved by the institution’s board o f
directors at least annually. The policies
adopted by the institution also should
reflect consideration o f the Interagency
Guidelines for Real Estate Lending
Policies established by the agencies in
conjunction with the final rule. The
final rule is intended to establish real
estate lending standards as required by
Section 304 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991.
EFFECTIVE DATE: March 19.1993.
FOR FURTHER INFORMATION CONTACT:
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.
Board: Roger T. Cole, Deputy
Associate Director (202) 452-2618,
Rhoger H. Pugh, Assistant Director (202)
728-5883, Todd A. Glissman,
Supervisory Financial Analyst (202)
452-3953, Virginia M. Gibbs,
Supervisory Financial Analyst (202)
452-2521, Alfred D. Teuscher,
Supervsory Financial Analyst (202)
452—3007, 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. Board of Governors of the
Federal Reserve System, 20th Street and
Constitution Ave., NW., Washington,
DC 20551. For the hearing impaired
only, Telecommunication Device for the
Deaf (TDD), Dorothea Thompson (202)
452-3544.
OCC: Frank R. Carbone, National
Bank Examiner. Office of the Chief
National Bank Examiner, (202) 8745170: William W. Templeton, Attorney,
Bank Operations and Assets Division,
(202) 874-4460; Mitchell Stengel,
Financial Economist. Banking Research
and Statistics, (202) 874-5240, Office of
the Comptroller of the Currency, 250 E
Street. SW„ Washington, DC 20219.
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
Policy; Deborah Dakin, Assistant Chief
Counsel, (202) 906-6445, Ellen J.
Sazzman, Counsel (Banking and
Finance), (202) 906-7133, end Valerie J.
Lithotomos, Counsel (Banking and
Finance), (202) 906-6439, 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 1991 (FDICIA),1 enacted December
19,1991, requires each federal banking
agency to adopt uniform regulations
prescribing standards for extensions of
credit secured by liens on or interests in
real estate or made for the purpose of
financing the construction of a building
or other improvements to real estate,
regardless of w hether a lien has been
taken on the property. In establishing
these standards, the agency 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. These regulations
are to become effective w ithin 15
months following the enactment of
FDICIA.
The legislative history of section 304
indicates that Congress wanted to
curtail abusive real estate lending
practices in order to reduce risk to the
deposit insurance funds and enhance
the safety and soundness of insured
depository institutions. Congress
considered placing explicit real estate
lending restrictions in the form of loanto-value (LTV ratio limitations directly
into the statute. Earlier versions of the
legislation included specific LTV limits
Ultimately, however, Section 304 was
enacted w ithout LTV limits, or any
other specific lending standards.
Instead, Congress m andated that the
federal banking agencies adopt uniform
regulations establishing real estate
lending standards without specifying
what these standards should entail.
On July 16,1992, the agencies’ joint
notice of proposed rulemaking (Joint
Proposal) was published in the Federal
Register, 57 FR 31594. The Joint
Proposal requested public comment for
a 45-day period, w hich ended on
August 31, 1992.
On August 17,1992, a supplem ent to
the Joint Proposal was published by the
OCC and the OTS in the Federal
Register, 57 FR 36911. The
supplem entary analysis provided, for
public comment, a description of the
estimated costs and benefits that were
likely to accrue as a result of
im plem enting the Joint Proposal.
B. The Joint Proposal: Two Alternatives
The Joint Proposal took the form of
two alternative regulations, both of
w hich would establish an LTV
framework for real estate lending. Under
the first alternative (Alternative 1), each
1 Pub. L. No. 102-242,105 Slat. 2236, 2354
(1991); 12 U.S.C. 1828(o); 12 U.S.C. 371(a).
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62891
insured depository institution w ould be
required to establish prudent lending
standards, including internal LTV
limits, for specific categories of real
estate loans. The LTV limits would be
set by the institutions w ithin or below
the following ranges of maximum ratios:
Category of real estate loan
Raw la n d ............................................
Pre-construction development ..........
Construction and land development .
Range ol
maximum
permissible
LTV ratios
(percent)
50
55
65
65
to 65
to 70
to 80
to 80
Owner-occupied 1- to 4-Samlly reslHome equity.......................................
*80 to 95
*80 to 95
*imoroved prooe*ty loans Include extension® of credit
secured by one oi the fouowing tyoee of real p'ooerty: (a)
farmland committed to ongoing agricultural proouctkxi; (b)
non-owner-occuped 1- to 4-famHy residential prooerty; (c)
multt-lamity res*oer*ial orooeny; (d) completed commercial
property; or (e) otner Income-producing prooerty tnat has
boon completed and le avawaoie for occuoancy and use.
3 Any portion of a to»n exceeding 65 percent LTV must be
covered by private mongage insurance.
The Joint Proposal indicated that the
lower end of each range would be
viewed by the agencies as a benchmark,
but that each institution would be
permitted to establish a higher ratio
within the range based on appropriate
factors. Institutions would be expected
to specify criteria that would be used to
qualify loans up to their internal LTV
limits, taking into consideration
individual lending factors such as the
financial strength of the borrower, debt
coverage ratios, credit enhancements,
and “take-out” commitments. 57 FR
31596. Each institution would be
expected to document fully its real
estate lending standards in written
policies approved by the institution’s
board of directors and subject to
examiner review.
Under the second alternative
(Alternative 2), the following uniform
maximum LTV ratios for specific
categories of real estate loans would be
established by the agencies and imposed
on all institutions:
Category ol real estate loan
Raw la n d ................................................
Pre-construction development ..............
Construction and land development ....
Improved property .................................
Owner-occupied 1- to 4-lamiiy residen
tial property.........................................
Home equity...........................................
Maximum
LTV ratio
(percent)
60
65
*75
*75
8 95
3 95
*Only H certain conditions are met. otherwise 65 percent
2 Only H the credit amortizes, otherwise 65 percent
3Only with private mongage insurance, otherwise 60
percent.
For both proposed alternatives,
institutions would be expected to base
real estate loans on proper loan
documentation and a recent appraisal or
evaluation of the real property
underlying the loan, in conformance
with the agencies’ respective appraisal
regulations and guidance. The LTV ratio
would be defined by taking the total
am ount of credit to be extended and
dividing that amount by the appraised
value or evaluation of the property, as
appropriate, at the time the credit is
originated. The total amount of credit
being extended w ould be combined
with the am ount of ail senior liens when
calculating the ratio.
In the Joint Proposal, the agencies
requested comment on a num ber of
issues, including w hether the
im plementation of LTV limits would be
an appropriate response to the
Congressional directive to set real estate
lending standards; w hether the
proposed LTV categories and ratios
would be appropriate; w hether the
proposed nonconforming loan
exemption would be adequate; w hether
additional loan categories or exceptions
for specific lending arrangements were
needed; whether the proposed
exclusions from the LTV limits would
be adequate; w hether the proposed
lending limits would provide sufficient
flexibility to meet credit demands and
not restrict the lending programs
established by institutions to fulfill their
obligations under the Community
Reinvestment Act, 12 U.S.C. 2901 et
seq.; and w hether 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 under the
proposed standards.
C. Sum m ary of Comments Received
J. C om m ents Received, by Agency
a. Federal Deposit Insurance
Corporation
The FDIC received over 1,360
comment letters in response to the
request for comments on the Joint
Proposal. Of that number,
approximately 342 were received from
the financial services industry and
related trade associations, as follows:
284 from depository institutions, 12
from depository institution holding
companies, and 46 from depository
institution trade associations.
Approximately 852 of the total number
of comment letters were received from
the real estate industry and related trade
associations, as follows: 421 from real
estate brokers and agents, 27 from real
estate brokers’ trade associations, 145
from residential home builders, 37 from
commercial construction firms, 136
from builders and developers, and 86
from home building trade associations.
The remaining comment letters were
received from approximately 37
professional and trade associations,
including com m unity development and
affordable housing associations; 9 state
regulatory agencies; 8 non-depository
institution lenders including mortgage
companies; 8 attorneys and law firms;
13 individuals; and 93 asset
management, insurance, manufacturing
and other firms,
b. Board of Governors of the Federal
Reserve System
The Board received approximately
1,300 comments in response to its
request for comments on the Joint
Proposal. N on-duplicative comments
were submitted by approximately 239
banks and bank holding companies, 312
home builders, 112 commercial builders
and developers (and building suppliers),
238 real estate brokers and brokers’
associations, 5 thrifts, 15 mortgage and
finance companies, 24 banking
associations, 10 Federal Reserve Banks,
4 state banking regulators, 53 attorneys
and law firms, 8 community
organizations, 3 title insurance
companies, 5 mortgage insurance
com panies and associations, 20 real
estate appraisers, and 39 building
associations,
c. Office of the Comptroller of the
Currency
The OCC received 1,250 comment
letters in response to its request for
comments on the Joint Proposal. Of the
total received, 245 letters, or
approximately 20 percent, were from
the financial services industry,
consisting of: 139 from national banks
and bank holding companies with
national bank subsidiaries; 75 from state
banks, savings banks, holding
com panies with state bank subsidiaries,
and savings and loan associations; 20
from industry trade associations; and 11
from other industry-related participants,
professionals, firms, and governing
organizations. The OCC received 960
letters, or about 77 percent of the total,
from the real estate industry, consisting
of: 370 from real estate and property
management firms, associations,
brokers, agents, and local real estate
boards, 508 from residential home
builders and their trade associations; 53
from individuals and firms involved in
commercial construction and
development; and 29 from other
industry-related professionals, councils,
and service providers. The remaining
letters were from other interested
organizations and individuals
including: 8 from mortgage insurance
underw riters and agents, 6 from
mortgage corporations, 8 from
appraisers and their trade association.
62892 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
14 from local affordable housing
corporations and associations, and 9
from law firms and bar associations.
by lenders as an im plied maximum. A
few commenters, on the other hand,
encouraged the agencies to take a strong
stand, even endorsing additional
d. Office of Thrift Supervision
regulatory requirements, in order to
The OTS received approximately
prevent a recurrence of abusive real
1,100 com ments in response to the Joint estate practices and resulting losses in
Proposal. Approximately 461 comments the future.
were received from builders and
Many commenters, especially those
developers, 404 of w hom are primarily
from the home building industry,
involved in residential construction and requested that loans secured by
development, and 57 of w hom are
residential property be excluded from
primarily involved in commercial
the Joint Proposal. Commenters also
construction and development. The
expressed a desire that the Joint
remaining comm ents were subm itted by Proposal be narrowed to focus on w hat
307 realtors; 147 trade associations
are considered “true” real estate loans
representing various industries,
and particularly those types on w hich
including 107 home builders
lenders have suffered substantial losses.
associations; 116 financial institutions,
The need to exclude ordinary business
including 38 federal savings banks and
loans and lines of credit in w hich real
41 savings associations; 15 individuals;
estate is taken as part of the collateral
8 federal and state governmental or
was highlighted by lenders.
quasi-govemmental agencies; 7
Concerning the im plementation of a
community developm ent associations; 7 loan-to-value framework, many
building suppliers; 6 public interest/
commenters expressed the view that the
comm unity groups; 5 appraisers; 5
Joint Proposal placed too much reliance
consulting firms; 5 mortgage insurance
on LTV ratios as an indicator of credit
companies; 4 law firms; 3 mortgage
quality. The commenters generally
bankers; 2 title insurance companies; 1
acknowledged that LTV ratios are
Member of Congress; and 1 unidentified typically employed by lenders to
party.
determine the extent to w hich they are
willing to lend on particular real estate
2. Joint A gency Sum m ary
parcels or projects. Commenters also
Almost all commenters expressed
acknowledged that LTV ratios are
concern w ith at least 3ome aspect of the
generally well-understood in the market
Joint Proposal. W hile many of the
and readily calculated, although some
commenters acknowledged the
concern was expressed over the quality
significant real estate lending abuses of
of appraised values. A majority of
the 1980’s, and the substantial losses to
commenters stressed that the LTV ratio
lenders that have resulted, a majority
is only one of several credit factors used
did not believe that a congressionally
w hen determining the overall credit
m andated regulation providing real
worthiness of a real estate project and is
estate lending standards offered a
often not the most important. A num ber
solution to the problem.
of commenters recommended the use of
Numerous commenters characterized
debt service coverage ratios when
the Joint Proposal as unnecessary in the
analyzing credits to emphasize reliance
current real estate lending environm ent
on the primary source of repayment
and urged that the agencies adopt
rather than collateral value w hen
flexible guidelines, rather than
analyzing credits. Other commenters
regulations. Comments received from
thought it inappropriate to adopt
lenders further highlighted their
standards using a debt service coverage
concern over the additional regulatory
ratio because this ratio is not typically
burden occasioned by the proposal.
used in all types of real estate lending
Numerous lenders asserted that the Joint and acceptable debt coverage ratios vary
Proposal would impose significant new
significantly from one real estate project
monitoring and management costs
to another.
w ithout ensuring corresponding
Concerning the application to LTV
increases in the safety or soundness of
limits to individual real estate lending
categories, nearly all commenters from
their lending operations.
Commenters also stated that the
the home building industry and many
proposed LTV standards could impede
other commenters requested that
future economic growth, particularly if
residential construction be separated
proposed benchm ark LTV limits (as
from commercial construction and
included in Alternative 1) were treated
assigned a higher maximum LTV ratio.
as maximum allowable LTV ratios by
A num ber of commenters also requested
lenders and examiners. In particular,
higher LTV limits for specific types of
com menters expressed concern that the
real estate lending. Some commenters
65 percent LTV benchm ark for
also sought clarification on applying
construction lending could be perceived LTV limits to combination loans,
pooling arrangements, and crosscollateralized loans.
Commenters were divided on their
preference between Alternatives 1 and 2
for im plem enting an LTV framework.
Generally, they preferred the higher
LTV limits and flexibility associated
w ith Alternative 1 but many disliked
the concept of a range of maximum LTV
ratios. A substantial num ber of
commenters preferred the simplicity
and im plied lower burden of
recordkeeping associated with
Alternative 2.
Commenters strongly favored the
concept of allowing lenders to make a
limited am ount of prudently
underw ritten loans that exceed LTV
limits. However, a num ber of
commenters felt that the proposed
“basket” for such loans (15 percent of
total capital) was too small, w ith some
suggesting that only that portion of a
loan exceeding the supervisory LTV
limits should be included in the basket .
A few commenters suggested that the
size of the basket should be based upon
something other than total capital.
Commenters also strongly agreed with
excluding certain transactions from the
LTV framework, as provided in the Joint
Proposal. Moreover, commenters asked
that the rule clearly exclude loans with
a partial government guarantee (or
insurance) from LTV lim its and allow
some new funds for renewals,
refinancings, and restructurings of
loans, particularly when needed to
preserve collateral value.
Finally, the comment letters raised
num erous questions about the
application of the proposed rules in
particular circumstances and made
many suggestions for amendments.
D. The Final Rule
As explained above, a significant
num ber of commenters expressed
concern that rigid application of a
regulation im plem enting LTV ratios
w ould constrict credit, impose
additional lending costs, reduce lending
flexibility, im pede economic growth,
and cause other undesirable
consequences. M any commenters urged
the adoption of guidelines establishing
general real estate lending standards in
lieu of regulatory standards focused
substantially on LTV limits as a means
of implementing section 304 of FDICIA
w ithout producing such adverse
consequences.
After reviewing the num erous
comments received in response to the
Joint Proposal, and considering the risk
posed to the federal deposit insurance
funds, the need for safe and sound
operation of insured depository
institutions, and the availability of
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62893
credit, the agencies have decided
against adopting specific LTV ratios or
ranges in the final regulation. Instead,
the agencies have adopted a final rule
that prescribes a num ber of standards
w ith regard to real estate lending.
The final rule requires institutions to
establish and maintain w ritten internal
real estate lending policies. Each
institution’s lending policies must be
consistent w ith safe and sound banking
practices and appropriate to the size of
the institution and the nature and scope
of its operations. The policies must
establish loan portfolio diversification
standards; establish prudent
underw riting standards, including LTV
limits, that are clear and measurable;
establish loan administration
procedures for the institution’s real
estate portfolio; and establish
docum entation, approval, and reporting
requirem ents to m onitor compliance
with the institution's real estate lending
policies.
The institution’s written real estate
tending policies m ust be reviewed and
approved by the institution’s board of
directors at least annually. Further, each
institution is expected to monitor
conditions in its real estate market to
ensure that its lending policies continue
to be appropriate for current market
conditions. Finally, the rule provides
that the lending policies established by
the institution should reflect
consideration of the Interagency
Guidelines for Real Estate Lending
Policies adopted by the agencies in
conjunction w ith the final rule.
E. The Interagency Guidelines for Real
Estate Lending Policies
In order to supplem ent and clarify the
standards stated in the final rule, the
agencies have adopted Interagency
Guidelines for Real Estate Lending
Policies (Guidelines). The Guidelines
describe the criteria and specific factors
that the agencies expect Insured
institutions to consider in establishing
their real estate lending policies.
J. Sum m ary o f th e G uidelines
In general, the Guidelines identify the
loan portfolio management and
underw riting considerations that the
agencies believe should be addressed in
a sound real estate lending policy. The
Guidelines also address the need to
establish loan adm inistration
procedures for real estate loans, and the
need for an appropriate review and
approval process for loan proposals that
would be exceptions to the institution’s
general lending policies. In addition to
identifying the types of underw riting
standards and requirem ents that should
be included in a sound real estate
lending policy, the Guidelines provide
specific guidance on loan-to-value
limits for various categories of real
estate loans.
secured by residential property as
compared to loans secured by
commercial property. In response to
these comments, and based on the lower
risk generally associated w ith 1- to 42. Issues R aised by Com menters and
family residential lending, the LTV
A ddressed b y G uidelines
standards incorporated into the
Many commenters expressed the view Guidelines differentiate between
that the approach taken in the Joint
construction loans for 1- to 4-family
Proposal placed too much em phasis on
residential property and other property.
LTV ratios. Numerous comments urged
In addition, the Guidelines do not
the agencies to include a measure of
specify an LTV limit for permanent
flexibility to permit institutions to lend
mortgages on owner-occupied 1- to 4beyond stated LTV limits w hen other
family residential property and for
underw riting factors indicated that an
home equity loans, as a general matter.
extension of credit could be made on a
The Guidelines do specify, however,
safe and sound basis. The agencies have that a perm anent residential mortgage or
developed the final rule, together with
home equity loan originated with a
the Guidelines, in response to these
loan-to-value that equals or exceeds 90
comments. The agencies recognize that
percent should have appropriate credit
creditworthy loans may be underw ritten enhancem ent in the form of mortgage
at LTV levels that exceed those stated in insurance or readily marketable
the Joint Proposal. The agencies also
collateral.2
recognize that simply satisfying an LTV
Many commenters raised objections to
ratio requirement does not necessarily
the scope of the Joint Proposal.
ensure a prudent and collectable loan.
Generally, as indicated above, a number
The agencies have concluded that a rule of commenters urged that the rule focus
that emphasizes only one element of the only on "tru e” real estate loans, and
underw riting process may not ensure
exclude business loans and lines of
sound real estate lending or contribute
credit in w hich real estate is taken as
to the safety and soundness of the
part of the collateral. The agencies agree
financial system. The approach adopted that an institution may appropriately
in the final rule and the Guidelines is
craft its lending policies to address
intended to provide insured depository
extensions of credit secured by an
institutions and borrowers additional
interest in real estate but not principally
flexibility w hile promoting prudent real underw ritten in reliance upon the real
estate lending.
estate collateral. The Guidelines permit
Many commenters objected to the
such an approach.
complexity and recordkeeping burden
Although most commenters generally
associated with Alternative 1 as
favored the concept of allowing lenders
proposed by the agencies; others
to make a limited am ount of prudently
believed that the ratios stated in
underw ritten loans in excess of the LTV
Alternative 2 were too low and would
limits, many commenters expressed
constrict the availability of credit. In
concern that the size of the basket
response, the agencies have
proposed by the agencies for such loans
incorporated a substantially revised
was not meaningful, and that the task of
LTV framework into the Guidelines. The managing the contents of the basket
LTV framework has been adopted in
would be burdensome. In addition to
guideline form, rather than in a
redesignating such loans as "loans in
regulation, in order to add flexibility.
Under the Guidelines, institutions may
’ This requirement is a change from the current
lend in excess of the supervisory LTV
OTS regulation on private mortgage insurance (PMIJ
requirements. The current OTS rule requires a
limits where credit is justifiable under
home loan with an LTV ratio in excess of 30 percent
the specific circumstances.
to have PM1 coverage for the amount of the loan in
Nevertheless, the agencies believe that
excess of the 80 percent LTV ratio. The OTS is
LTV limits are an im portant element of
revising it* current regulatory requirement to
comport with the Guidelines. OTS is not, however,
prudent underw riting criteria and that
revising its current risk-based capital home loans,
lenders should carefully set and follow
to be eligible for the favorable 50 percent risksuch limits.
welght category, to be no greater than an BO percent
In specifying LTV ratios in the
LTV ratio (or have PMI coverage for the amount of
the loan in excess of 80 percent). Thus, thrift
Guidelines, the agencies have made a
institutions will have the option, for high-LTV-ratio
num ber of other modifications to take
home loans, of either obtaining PMI coverage for the
account of suggestions or objections
amount of home loans in excess of 80 percent and
stated by commenters. Many
holding 4 percent capital, or of obtaining less (or
no) PMI coverage and holding 8 percent capital.
comiiienters, especially those from the
OTS believes that this differential capital treatment
home building industry, requested that
is appropriate, given the difference in risk of loss
loans secured by residential property be of such loans. OTS plans to work with the other
excluded from the Joint Proposal, or that agencies on the adoption of a uniform capital
treatment of home loans.
a higher LTV limit be applied to loans
62894 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
excess of the supervisory LTV lim its” ,
loans as “ loans in excess of the
supervisory LTV lim its”, the Guidelines
address this concern in two ways. First,
the size of the basket has been increased
to 100 percent of an institution's total
cap ital3, with a 30 percent sub-limit for
extensions of credit secured by property
other than 1- to 4-family residential
property. Second, the nature of the
basket has been altered. As specified in
the Guidelines, the aggregate level of
these loans will serve as an indicator of
an institution’s compliance with its
interna! policies. A high level of such
loans may indicate the need for an
institution to re-evaluate the
effectiveness of its internal lending
policies or signal problems with its
underwriting practices.
F. O ther Considerations
1. Subsidiaries o f Thrifts and StateChartered Banks
In the Joint Proposal, the FDIC and
the Board indicated that they were
considering the application of the
proposed standards to lending
subsidiaries of state banks. The OCC
generally applies provisions of Federal
banking laws and parent national bank
to its operating subsidiaries and its bank
service corporations. 12 CFR 5.34(d)(2)
and 5.35(e)(3)(i) (1992). As of December
10, 1992. Section 24(d) of the Federal
Deposit Insurance Act (12 U.S.C.
1.8318(d)) generally prohibits
subsidiaries of insured state banks from
engaging as principal in any type of
activity that is not permissible for
subsidiaries of national banks, unless
the FDIC has made certain
determinations, including a
determination that the activity does not
pose a significant risk to the appropriate
deposit insurance fund.
Some commenters sought clarification
on w hether insured state bank
subsidiaries w ould be subject to
limitations cn real estate lending as set
forth in the Joint Proposal. Although the
final rule does not expressly state that
it applies to subsidiaries of insured state
banks, it may apply to such subsidiaries
by operation of section 24(d) of the
Federal Deposit Insurance Act.4 The
1For state member banks, the term "total capital"
means "total risk-based capital" as defined in
appendix A to 12 CFR part 208. For insured state
non-member banks, "total capital" refers to that
term as described in Table 1 of appendix A to 12
CFR part 325. For national banks, the term “total
capital" is defined at 12 CFR 3.2(e). For savings
associations, the term "total capital” is defined at
12 CFR 567.5(c).
4 If the requirements of the rule apply by virtue
of the operation of section 24(d), an insured state
bank would be required to obtain the FDIC's prior
consent for any of its subsidiaries to make real
FDIC intends to consider in the context
of an upcoming rulemaking concerning
section 24(d) the issue of w hether
insured state bank subsidiaries engaging
in real estate lending are subject to the
requirements of the final real estate
lending rule. The Board intends to
apply the final rule to subsidiaries of
state member banks engaged in real
estate lending activities.
For thrift institutions, the OTS stated
in the Joint Proposal that it was the
OTS’s intent to subject all subsidiaries
and service corporations to the
proposed rule. Little public comment
was received on this issue. The OTS has
revised the final rule to cover only
subsidiaries of thrifts that are not
subject to the “ deduction from
regulatory capital” requirement under
12 CFR part 567 and over which the
thrift exercises control. Subsidiaries
subject to the “deduction from
regulatory capital” requirement are, in
general, those that engage in activities
ere not permissible for national banks.
As a thrift institution’s investments in
and loans to such subsidiaries are
deducted from the thrift's capital for
capita! adequacy purposes, the OTS
believes that the institution and the
deposit insurance fund are insulated
from the risk of investments in such
subsidiaries. As such, the final rule
prescribing real estate lending standards
does not apply to them.
Other thrift subsidiaries—those that
are no! subject to the “deduction from
regulatory capital” requirement—are
subject to the final rule only if the thrift
exercises control over the subsidiary.
This includes operating subsidiaries
that are defined as entities that are more
than 50 percent owned by a thrift
institution and which engage only in
activities permissible for a Federal
savings association. The OTS has
determined that it is inappropriate to
subject entities that thrifts do not
control to the regulation.
2. Bank H olding Companies and Their
N nnbank Subsidiaries
The Board sought comment on
whether, to what extent, and the m anner
in which the proposed real estate
lending standards should be imposed on
bank holding companies and their
nonbank subsidiaries. In seeking such
comment, the Board indicated that it
was not clear by virtue of the text of
section 304 of FDICIA whether such
standards should be applicable to bank
holding companies and their nonbank
subsidiaries.
estate loans other than in compliance with the final
rule.
Several commenters addressed this
question. Some commenters
recommended that the proposed real
estate standards be applied to bank
holding companies and their nonbank
subsidiaries because, in the
com m enters’ view, all lenders should be
held to the same prudent lending
standards. Also, several commenters
expressed concern that banking
organizations may choose to underwrite
loans with LTV ratios in excess of
supervisory limits in their nonbank
subsidiaries or move such loans from
insured depository institutions to
nonbank affiliates to avoid imposition of
the rule.
In contrast, a larger num ber of
commenters argued that the proposed
real estate lending standards should not
be imposed on bank holding companies
and their nonbenk subsidiaries because,
in their opinion, the federal deposit
insurance funds will not be at risk with
respect to real estate loans made by such
entities, and finance or mortgage
company subsidiaries of bank holding
com panies may be placed at a
competitive disadvantage with respect
to other nonbank real estate lenders.
Some commenters also noted that real
estate loans made by benk holding
com panies and nonbank subsidiaries for
sale to secondary market investors
already are subject to significant
underw riting requirements established
by these investors.
For the reasons expressed by the
commenters on this issue, the Board has
determined, for the present time, not to
adopt the real estate lending standards
for bank holding companies and their
nonbank subsidiaries. The Board notes
that the real estate lending activities of
bank holding com panies and their
nonbank subsidiaries are not funded by
Insured deposits, and are subject to
limitations imposed on transactions
between an insured depository
institution and its affiliates by sections
23A and 23B of the Federal Reserve Act.
Accordingly, the final rule has been
revised to remove the proposed
revisions to the Board’s Regulation Y.
However, the Board will expect bank
holding com panies and their nonbank
subsidiaries to conduct any real estate
lending activities in a prudent manner
consistent with safe and sound lending
standards.
3. U.S. Branches and Agencies o f
Foreign Banks
A few commenters raised a question
as to how U.S. branches and agencies of
foreign banks w ill be treated for
purposes of applying the required
standards. The agencies intend to apply
the final rule to insured branches of
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62895
foreign banks, since these institutions
are considered insured depository
institutions for other regulatory
purposes and would typically be subject
to such rules. At this time, the agencies
do not intend to apply the rule directly
to uninsured branches or agencies of
foreign banks. However, the agencies
may consider the final rule as general
supervisory guidance when reviewing
credit portfolios and practices at such
branches and agencies.
The FD1G has revised its final rule to
clarify that the rule applies to statelicensed insured branches of foreign
banks.
4.Phase-in Provision
Section 304(a)(4) of FDICIA provides,
among other things, that the regulations
adopted pursuant to section 304 “shall
become effective not later than 15
months after the date of enactment of
I FDICIA!." FDICIA was enacted on
December 19. 1991, In the Joint
Proposal, the agencies sought comment
on whether it would be appropriate, in
order Jo accommodate credit needs, to
phase-in the real estate Sending
standards after the final rule becomes
effective.
Comments were received on both
sides of this question. Many
commenters felt that some additional
time would be needed for lenders to
adopt LTV limits, revise lending
guidelines and policies, re-train loan
officers, prepare compliance and
auditing programs and procedures, re
evaluate Community Reinvestment Act
and other special Sending programs, and
change bank lending literature. A
D u m be r of these com menters also noted
that a phase-in period would ensure that
extensions of credit currently being
processed, but not yet funded, under
existing underw riting requirements will
remain unaffected by the final rule. A
few commenters also recommended that
the final rule couid be phased-in by
category ofloan, starting with those
categories representing the greatest risk
lo lenders and the federal deposit
insurance funds.
In contrast, other commenters
asserted that a phase-in period is not
required by FDICIA. Many of these
commenters also opined that a phase-in
period would not be beneficial for
lenders because most properly managed
insured depository institutions extend
credit in a prudent and responsible
manner consistent with the proposed
regulations. These commenters
maintained that, if the proposed real
estate lending standards are truly
required to protect the safety and
soundness of banking, they should be
implemented immediately.
The agencies note that, by adopting a
final rule at this time, insured
institutions will have approximately
three months to prepare to implement
the requirements of the rule prior to the
March 19,1993, statutory effective date.
In view of this delayed effective date,
the revisions made to the Joint Proposal,
and the incorporation of LTV ratios in
the Guidelines rather than in a
regulation, the agencies believe that it is
not necessary to provide for a phase-in
period.
5. OTS Regulations
In the Joint Proposal, the OTS
specifically sought comments on tha
interaction between this rulemaking and
the OTS' current regulations. Few
commenters addressed this issue. The
OTS has determined in the interest of
regulatory consistency, as well as
interagency consistency, to revise its
current lending regulations to ensure
that they conform to the real estate
lending requirements consistent with
this rulemaking. The OTS therefore has
deleted duplicative or conflicting
requirements, including specific
maturity limits and repayment
requirements, and, where appropriate,
substituted explicit cross-references to
this rulemaking.
6. Well-Capitalized Institutions
The agency requested comment on
w hether they should distinguish among
lending institutions in implementing
section 304 of FDICIA on the basis of
the institution's financial and
managerial strength. Several comment
letters were received from banks and
thrifts that supported special
consideration for well-capitalized, wellmanaged institutions, such as affording
them higher LTV limits or increasing
the size of their basket of loans in excess
of the supervisory LTV limits. In
addition, some commenters suggested
that well-capitalized institutions be
exempted from the final rule because, in
the commenters' opinion, these
institutions pose minimal risk to the
federal deposit insurance funds.
Other commenters objected to
exempting well-capitalized institutions
from the rule. These commenters cited
examples of insured depository
institutions that had been wellcapitalized but later incurred substantial
losses as a result of real estate lending.
Although the agencies recognize that
well-capitalized, well-managed
institutions pose less risk to the federal
deposit insurance funds than other
institutions, the agencies have decided
to apply the regulation to all
institutions. The agencies are concerned
that the financial condition of any
institution, including a well-capitalized
institution, could deteriorate very
quickly if prudent real estate lending
policies are not followed. While the rule
adopted by the agencies does not
include special provisions for strong
institutions, the Guidelines identify
internal characteristics, such as
financial condition, as factors to be
considered with regard to the real estate
lending policies adopted by the
institutions.
Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act. 5 U.S.C.
605(b), the agencies hereby certify that
the final rule will not have a significant
impact on a substantial number of small
entities.
The agencies have concluded that the
final rule will not have a disparate
impact on smaller depository
institutions in part because such lenders
are likely to make fewer loans, or a
narrower range of loans, than larger
institutions. Thus, it is expected that the
final rule's impact, of the nature
contemplated by the Regulatory
Flexibility Act, on smaller institutions
should be proportionate to its impact on
larger institutions.
Moreover, while the final rule applies
uniformly to insured depository
institutions regardless of size, lenders
are required to adopt policies that are
appropriate to the size of the institution
and the nature and scope of its
operations. Similarly, the Guidelines
identify as factors to be considered by
an institution in formulating its loan
policies such internal characteristics as
the size of the institution and of its
Sending staff.
The agencies received and considered
comments regarding the likely impact of
the Joint Proposal on small depository
institutions. As previously described,
the agencies have revised the proposal
in a num ber of ways that address the
concerns raised by these commenters.
The agencies believe that, to the extent
that these commenters were concerned
about a disproportionate impact on such
entities, the flexibility incorporated into
the final rule and the Guidelines should
adequately address their concerns.
Executive O rder No. 12291
The Director of the OTS and the
Comptroller of the Currency have
independently determined that this
regulation does not constitute a “ major
rule" w ithin the meaning of Executive
Order No. 12291 and Treasury
Department Guidelines. The final rule
requires institutions to adopt real estate
lending policies and procedures. Such
policies have customarily been an
62896 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
integral part of an institution’s prudent
lending operations. Because the final
regulation merely codifies practices that
are already usual and customary, the
OTS and OCC believe that this
regulation: (1) W ould not have an
overall effect on the economy of
$100,000,000 or more; (2) would not
result in a major increase in the cost of
financial institution operations or
government supervision; and (3) would
not have a significant adverse effect on
competition, employment, investment,
productivity, or innovation, w ithin the
meaning of the Executive Order.
Accordingly, a regulatory impact
analysis is not required.
Paperw ork Reduction Act
The collection of information
requirements contained in the Joint
Proposal have been reviewed and
approved by the Office of Management
and Budget (OMB) in accordance with
the requirements of the Paperwork
Reduction Act (44 U.S.C. 3504(h)). Due
to the changes reflected in the final rule,
a resubmission was made to and
approved by OMB under control
numbers 1550-0078 (OTS), 1557-0190
(OCC), 7100-AB42 (BOARD), and 30640112 (FDIC). The revised annual
reporting burden for the collection of
information from insured depository
institutions is estimated as follows:
Estimated number of recordkeepers:
State nonmember banks (FDIC)........... 7,550
State member banks (Board)................... 985
National banks (OCC)...........................3,750
Savings associations (OTS)..................2,000
Estimated average annual burden per
recordkeeper (based on an initial
3-year period)...............................40 hours
Estimated total annual recordkeeping
burden:
FDIC....................................... 302,000 hours
Board........................................39,400 hours
OCC........................................150,000 hours
OTS.......................................... 80,000 hours
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, Attention—
Paperwork Reduction Project Number:
3064-0112 (FDIC); 7100-AB42
(BOARD); 1557-0190 (OCC); 1550-0078
(OTS), OMB, New Executive Office
Building, room 3208, W ashington, DC
20503; and to the appropriate agency, as
follows:
FDIC. A ssistant Executive Secretary
(Administration), room F—453,
Paperwork Reduction Project Number
3064-0112, Federal Deposit Insurance
Corporation, W ashington, DC 20429.
Board. Mr. W illiam W. Wiles,
Secretary, Paperwork Reduction Project
Number 7100-AB42, Board of
Governors of the Federal Reserve
System, 20th Street and Constitution
Avenue, NW., Washington, DC 20551.
OCC. Legislative, Regulatory, and
International Activities Division,
Paperwork Reduction Project Number
1557-0190, Office of the Comptroller of
the Currency, 250 E Street, SW.,
Washington, DC 20219.
OTS. Supervision Policy, Paperwork
Reduction Project Number 1550-0078,
Office of Thrift Supervision, 1700 G
Street, NW., Washington, DC 20552.
The recordkeeping and collection of
information in this interagency
rulemaking is required in 12 CFR part
365 (FDIC); 12 CFR part 208, subpart C
(FRB); 12 CFR part 34, subpart D (OCC);
and 12 CFR 563.100-101 (OTS). The
likely recordkeepers are insured
depository institutions. The
recordkeeping is required by the
agencies to protect the deposit
insurance funds and to ensure safe and
sound operation of insured depository
institutions.
Institutions w ill use the lending
policies to guide their lending
operations in a manner that is consistent
with safe and sound banking practices
and appropriate to their size and nature
and scope of their operations. These
policies should address certain lending
considerations, including loan-to-value
limits, loan adm inistration policies,
portfolio diversification standards, and
documentation, approval, and reporting
requirements. The agencies w ill use this
information in their examination of
institutions to ensure that the real estate
loans made by those institutions are
consistent w ith existing statutory and
regulatory criteria, with principles of
safety and soundness, and with relevant
policy guidance.
Text o f Final Common Rule
The text of the final common rule
appears below:
Appendix to —Interagency
Guidelines for Real Estate Lending
Policies
The agencies' regulations require that each
insured depository institution adopt and
maintain a written policy that establishes
appropriate limits and standards for all
extensions of credit that are secured by liens
on or interests in real estate or made for the
purpose of financing the construction of a
building or other improvements.5 These
guidelines are intended to assist institutions
in the formulation and maintenance of a real
estate lending policy that is appropriate to
‘ The agencies have adopted a uniform rule on
real estate lending. See 12 CFR part 365 (FDIC); 12
CFR part 208, subpart C (FRB); 12 CFR part 34,
subpart D (OCC); and 12 CFR 563.100-101 (OTS).
the size of the institution and the nature and
scope of its individual operations, as well as
satisfies the requirements of the regulation.
Each institution’s policies must be
comprehensive, and consistent with safe and
sound lending practices, and must ensure
that the institution operates within limits and
according to standards that are reviewed and
approved at least annually by the board of
directors. Real estate lending is an integral
part of many institutions' business plans and,
when undertaken in a prudent manner, will
not be subject to examiner criticism.
Loan Portfolio Management Considerations
The lending policy should contain a
genera] outline of the scope and distribution
of the institution's credit facilities and the
manner in which real estate loans are made,
serviced, and collected. In particular, the
institution’s policies on real estate lending
should:
• Identify tho geographic areas in which
the institution will consider lending.
• Establish a loan portfolio diversification
policy and set limits for real estate loans by
type and geographic market (e.g., limits on
higher risk loans).
• Identify appropriate terms and conditions
by type of real estate loan,
» Establish loan origination and approval
procedures, both generally and by size and
type of loan.
• Establish prudent underwriting standards
that are clear and measurable, including
loan-to-value limits, that are consistent with
these supervisory guidelines.
• Establish review and approval procedures
for exception loans, including loans with
loan-to-value percentages in excess of
supervisory limits.
• Establish loan administration procedures,
including documentation, disbursement,
collateral inspection, collection, and loan
review.
• Establish real estate appraisal and
evaluation programs.
• Require that management monitor the
loan portfolio and provide timely and
adequate reports to the board of directors.
The institution should consider both
internal and external factors in the
formulation of its loan policies and strategic
plan. Factors that should be considered
include:
• The size and financial condition of the
institution.
• The expertise and size of the lending
staff.
• The need to avoid undue concentrations
of risk.
• Compliance with all real estate related
laws and regulations, Including the
Community Reinvestment Act, antidiscrimination laws, and for savings
associations, the Qualified Thrift Lender test.
• Market conditions.
The institution should monitor conditions
in the real estate markets in its lending area
so that it can react quickly to changes in
market conditions that are relevant to its
lending decisions. Market supply and
demand factors that should be considered
include:
• Demographic indicators, including
population and employment trends.
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62897
• Zoning requirements.
• Current and projected vacancy,
construction, and absorption rates.
• Cur-ent and projected lease terms, rental
rates, and sales prices, including
concessions.
• Current and projected operating
expenses for different types of projects.
• Economic indicators, including trends
and diversification of the lending area.
• Valuation trends, including discount and
direct capitalization rates.
Underwriting Standards
Prudently underwritten real estate loans
should reflect all relevant credit factors,
including:
• The capacity of the borrower, or income
from the underlying property, to adequately
service the debt.
» The value of the mortgaged property.
• The overall creditworthiness of the
borrower.
• The level of equity invested in the
property,
• Any secondary sources of repayment.
• Any additional collateral or credit
enhancements (such as guarantees, mortgage
insurance or takeout commitments).
The lending policies should reflect the
level of risk that is acceptable to the board
of directors and provide clear and
measurable underwriting standards that
enable the institution’s lending staff to
evaluate these credit factors. The
underwriting standards should address:
• The maximum loan amount by type of
property.
• Maximum loan maturities by type of
property.
• Amortization schedules.
• Pricing structure for different types of
real estate loans.
• Loan-to-value limits by type of property.
For development and construction
projects, and completed commercial
properties, the policy should also establish,
commensurate with the size and type of the
project or property:
• Requirements for feasibility studies and
sensitivity and risk analyses (e.g., sensitivity
of income projections to changes in economic
variables such as interest rates, vacancy rates,
or operating expenses).
• Minimum requirements for initial
investment and maintenance of hard equity
by the borrower (e.g., cash or unencumbered
investment in the underlying property).
• Minimum standards for net worth, cash
flow, and debt service coverage of the
borrower or underlying property.
• Standards for the acceptability of and
limits on non-amortizing loans
• Standards for the acceptability of and
limits on the use of interest reserves.
• Pre-leasing and pre-sale requirements for
income-producing property.
• Pre-sale and minimum unit release
requirements for non-income-producing
property loans.
• Limits on partial recourse or nonrecourse
loans and requirements for guarantor
support.
• Requirements for takeout commitments
• Minimum covenants for loan
agreem ents.
Loan Administration
T h e in stitu tio n sh o u ld also estab lish loan
a d m in istratio n p rocedures for its real estate
p ortfolio that address:
• D ocum entation, including:
• T ype a n d frequency of financial
statem ents, in clu d in g req u irem en ts for
verification o f inform ation p rovided by
the borrow er.
• T ype a n d frequency o f collateral
evalu atio n s (appraisals a n d o th er
estim ates o f value).
• Loan closing a n d disbursem ent.
• P aym ent processing.
• E scrow adm inistration.
• C ollateral adm inistration.
• Loan payoffs.
• C ollections a n d foreclosure, including:
• D elinquency follow -up procedures.
• F oreclosure tim ing.
• E xtensions and o th er form s of
forbearance.
• A cceptance of d eeds in lieu of
foreclosure.
• C laim s processing (e.g., seeking recovery
o n a defaulted loan covered by a governm ent
guaranty or in su ra n ce program ).
• S ervicing a n d p a rtic ip a tio n agreem ents.
rem ain w ith in th e sup erv iso ry lim its, lenders
sh o u ld red eterm in e conform ity w henever
collateral su b stitu tio n s are m ade to the
collateral pool.
In estab lish in g internal loan-to-value
lim its, each le n d e r is expected to carefully
c o n sid er the institu tio n -sp ecific a n d m arket
factors listed u n d e r "L oan Portfolio
M anagem ent C o n sid eratio n s,” as w ell as any
o th er relevant factors, such as the particular
subcategory or type of loan. For any
subcategory o f loans th at exhibits greater
credit risk th an the overall category, a lender
sh o u ld c o n sid er th e estab lish m en t of an
internal loan-to-value lim it for that
subcategory that is low er th an the lim it for
the overall category.
T h e loan-to-value ratio is only o n e of
several p e rtin e n t cred it factors to be
co n sid ered w hen u n d e rw ritin g a real estate
loan. O ther c red it factors to be taken into
account are highlighted in the "U n d erw ritin g
S ta n d a rd s" section above. B ecause of these
o th er factors, the estab lish m en t of these
supervisory lim its sh o u ld not be interpreted
to m ean that loans at th ess levels w ill
autom atically be co n sid ered sound.
L oans in Excess o f the S u p e rv iso ry Loan-toV alue L im its
T he agencies recognize that ap propriate
loan-to-value lim its vary not o nly am ong
Supervisory Loan-to-Value Limits
categories o f real estate loans b u t also am ong
In stitu tio n s sh o u ld establish th eir ow n
in d iv id u a l loans. T herefore, it m ay be
in tern al loan-to-value lim its for real estate
ap p ro p riate in in d iv id u a l cases to originate
loans. These in tern al lim its sh o u ld not
or p u rc h ase loans w ith loan-to-value ratios in
exceed th e follow ing supervisory lim its:
excess of the sup erv iso ry loan-to-value
lim its, b ased o n th e su p p o rt p rovided by
Loan-too th er cred it factors. S u c h loans sh o u ld be
value limit
Loan category
id en tifie d in th e in stitu tio n s’s records, and
(percent)
th e ir aggregate am ount rep o rted at least
65 quarterly to the in stitu tio n 's board of
75 directors. (See a d d itio n al re porting
Land development ................................
req u irem en ts described u n d e r “ E xceptions to
Construction:
Commercial, multltamily,' and
the G eneral Policy.")
80
other nonresldential.... ...............
T h e aggregate a m o u n t o f all loans in excess
85 of (he su pervisory loan-to-value lim its should
1- to 4-family residential ...............
85 not exceed 100 percent o f total c ap ital.2
improved property.................................
Owner-occupied 1- So 4-(amlly and
M oreover, w ith in the aggregate lim it, total
home equity.......................................
(*>
loans for all com m ercial, agricultural,
' Multlfamily construction Includes condominiums *nd m u ltifam ily o r o th er n o n -l-to -4 fam ily
cooperatives.
2 A toan-!o~value Hmlt has not been established lor re sid en tial pro p erties sh o u ld not exceed 30
permanent mortgage Of home equity Joans on owner* p e rce n t o f total capital. A n in stitu tio n w ill
occupied, 1- to 4-famiiy residential property. However, tor
any such Joan with a loan-to-value ratio that equals or com e u n d e r increased sup erv iso ry scrutiny
exceeds 90 percent at origination, an institution should as the total o f su c h loans ap p ro ach es these
require appropriate credit enhancement in the form of either
levels.
mongage Insurance or readily maricetabte collateral.
In d e te rm in in g th e aggregate am o u n t of
T he supervisory loan-to-value lim its
such loans, in stitu tio n s should: (a) Include
sh o u ld be a p p lie d to the u n d e rly in g pro p erty
a ll loans secured by the sam e pro p erty if any
that collateralizes the loan. For loans that
one o f those loans exceeds the supervisory
fu n d m u ltip le phases o f th e sam e real estate
loan-to-value lim its; a n d (b) in clu d e the
project (e.g., a loan for b oth lan d
recourse obligation o f any such loan sold
developm ent a n d c o n stru ctio n of an office
w ith recourse. C onversely, a loan sh o u ld no
building), th e ap p ro p riate loan-to-value lim it
longer be rep o rted to th e directors as part of
is th e lim it applicable to the final phase o f
aggregate totals w h en re d u ctio n in p rin cip al
the project fu n d ed by the loan; how ever, loan
o r sen io r liens, o r a d d itio n al c o n trib u tio n of
d isb u rsem en ts sh o u ld not exceed actual
collateral o r equity (e.g., im provem ents to the
develo p m en t or con stru ctio n outlays. In
situ atio n s w here a loan is fully cross2 For the state member banks, the term "total
colla*eralized by tw o or m ore pro p erties or is
capital” means “total risk-based capital” as defined
secured by a collateral pool o f tw o or m ore
in appendix A to 12 CFR part 208. For insured state
properties, th e ap p ro p riate m axim um loan
non-member banks, “total capital” refers to that
am o u n t u n d e r supervisory loan-to-value
term described In table I of appendix A to 12 CFR
lim its is the sum of the valu e o f each
part 325. For netional banks, the term “total
property, less senior liens, m u ltip lie d by the
capital” is defined at 12 CFR 3.2(e). For savings
ap p ro p riate loan-to-value lim it for each
associations, the term "total capital” is defined at
12 CFR 567.5(c).
property. To en su re th at collateral m argins
62898 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
real property securing the loan), bring the
loan-to-value ratio into compliance with
supervisory limits.
Excluded Transactions
The agencies also recognise that there are
a number of lending situations in which
other factors significantly outweigh the need
to apply the supervisory loan-to-value limits.
These include:
• Loans guaranteed or insured by the U.S.
government or its agencies, provided that the
amount of the guaranty or insurance is at
least equal to the portion of the loan that
exceeds the supervisory loan-to-value limit.
• Loans backed by the full faith and credit
of a state government, provided that the
amount of thp assurance is at least equal to
the portion 6f the loan that exceeds the
supervisory loan-to-value limit.
• Loans guaranteed or insured by a state,
municipal or local government, or an agency
thereof, provided that the amount of the
guaranty or insurance is at least equal to the
portion of the loan that exceeds the
supervisory loan-to-value limit, and provided
that the lender has determined that the
guarantor or insurer has the financial
capacity and willingness to perform under
the terms of the guaranty or insurance
agreement.
• Loans that are to be sold promptly after
origination, within recourse, to a financially
responsible third party.
• Loans that are renewed, refinanced, or
restructured without the advancement of new
funds or an increase in the line of credit
(except for reasonable closing costs), or loans
that are renewed, refinanced, or restructured
in connection with a workout situation,
either with or without the advancement of
new funds, where consistent with safe and
sound banking practices and part of a clearly
defined and well-documented program to
achieve orderly liquidation of the debt,
reduce risk of loss, or maximize recovery on
the loan.
• Loans that facilitate the sale of real estate
acquired by the lender in the ordinary course
of collecting a debt previously contracted in
good faith.
• Loans for which a lien on or interest in
real property is taken as additional collateral
through an abundance of caution by the
lender (e.g., the institution takes a blanket
lien on all or substantially all of the assets
of the borrower, and the value of the real
property is low relative to the aggregate value
of all other collateral).
• Loans, such as working capital loans,
where the lender does not rely principally on
real estate as security and extension of credit
is not used to acquire, develop, or construct
permanent improvements on real property.
• Loans for the purpose of financing
permanent improvements to real property,
but not secured by the property, if such
security interest is not required by prudent
underwriting practice.
Exceptions to the General Lending Policy
Some provision should be made for the
consideration of loan requests from
creditworthy borrowers whose credit needs
do not fit within the institution’s general
lending policy. An institution may provide
for prudently underwritten exceptions to its
lending policies, including loan-to-value
limits, on a loan-by-loan basis. However, any
exceptions from the supervisory loan-tovalue limits should conform to the aggregate
limits on such loans discussed above.
The board of directors is responsible for
establishing standards for the review and
approval of exception loans. Each institution
should establish an appropriate internal
process for the review and approval of loans
that do not conform to its own internal policy
standards. The approval of any such loan
should be supported by a written justification
that clearly sets forth all of the relevant credit
factors that support the underwriting
decision. The justification and approval
documents for such loans should be
maintained as a part of the permanent loan
file. Each institution should monitor
compliance with its real estate lending policy
and individually report exception loans of a
significant size to its board of directors.
Supervisory Review o f Real Estate Lending
Policies and Practices
The real estate lending policies of
institutions will be evaluated by examiners
during the course of their examinations to
determine if the policies are consistent with
safe and sound lending practices, these
guidelines, and the requirements of the
regulation. In evaluating the adequacy of the
institution’s real estate lending policies and
practices, examiners will take into
consideration the following factors:
• The nature and scope of the institution’s
real estate lending activities.
• The size and financial condition of the
institution.
• The quality of the institution’s
management and internal controls.
• The expertise and size of the lending and
loan administration staff.
• Market conditions.
Lending policy exception reports will also
be reviewed by examiners during the course
of their examinations to determine whether
the institutions’ exceptions are adequately
documented and appropriate in light of all of
the relevant credit considerations. An
excessive volume of exceptions to an
institution’s real estate lending policy may
signal a weakening of its underwriting
practices, or may suggest a need to revise the
loan policy.
Definitions
For the purposes of these Guidelines:
Construction loan means an extension of
credit for the purpose of erecting or
rehabilitating buildings or other structures,
including any infrastructure necessary for
development.
Extension of credit or loan means:
(1) The total amount of any loan, line of
credit, or other legally binding lending
commitment with respect to real property;
and
(2) The total amount, based on the amount
of consideration paid, of any loan, line of
credit, or other legally binding lending
commitment acquired by a lender by
purchase, assignment, or otherwise.
Improved property loan means an
extension of credit secured by one of the
following types of real property:
(1) Farmland, ranchland or timberland
committed to ongoing management and
agricultural production;
(2) 1- to 4-family residential property that
is not owner-occupied;
(3) Residential property containing five or
more individual dwelling units;
(4) Completed commercial property; or
(5) Other income-producing property that
has been completed and is available for
occupancy and use, except incomeproducing owner-occupied 1- to 4-family
residential property.
Land development loan means an
extension of credit for the purpose of
improving unimproved real property prior to
the erection of structures. The improvement
of unimproved real property may include the
laying or placement of sewers, water pipes,
utility cables, streets, and other infrastructure
necessary for future development.
Loan origination means the time of
inception of the obligation to extend credit
(i.e., when the last event or prerequisite,
controllable by the lender, occurs causing the
lender to become legally bound to fund an
extension of credit).
Loan-to-value or loan-to-value ratio means
the percentage or ratio that is derived at the
time of loan origination by dividing an
extension of credit by the total value of the
property(ies) securing or being improved by
the extonsion of credit plus the amount of
any readily marketable collateral and other
acceptable collateral that secures the
extension of credit. The total amount of all
senior liens on or interests in such
property(ies) should be included in
determining the loan-to-value ratio. When
mortgage insurance or collateral is used in
the calculation of the loan-to-value ratio, and
such credit enhancement is later released or
replaced, the loan-to-value ratio should be
recalculated.
Other acceptable collateral means any
collateral in which the lender has a perfected
security interest, that has a quantifiable
value, and is accepted by the lender in
accordance with safe and sound lending
practices. Other acceptable collateral should
be appropriately discounted by the lender
consistent with the lender’s usual practices
for making loans secured by such collateral.
Other acceptable collateral includes, among
other items, unconditional irrevocable
standby letters of credit for the benefit-of the
lendor.
Owner-occupied, when used in
conjunction with the term 1- to 4-family
residential property means that the owner of
the underlying real property occupies at least
one unit of the real property as a principal
residence of the owner.
Readily marketable collateral means
insured deposits, financial instruments, end
bullion in which the lender has a perfected
interest. Financial instruments and bullion
must be salable under ordinary
circumstances with reasonable promptness at
a fair market value determined by quotations
based on actual transactions, on an auction
or similarly available daily bid and ask price
market. Readily marketable collateral should
be appropriately discounted by the lender
consistent with the lender’s usual practices
for making loans secured by such collateral.
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62899
Value means an opinion or estimate, set
forth in an appraisal or evaluation,
whichever may be appropriate, of the market
value of real property, prepared in
accordance with the agency’s appraisal
regulations and guidance. For loans to
purchase an existing property, the term
"value” means the lesser of the actual
acquisition cost or the estimate of value.
1-to 4-family residential property means
property containing fewer than five
individual dwelling units, including
manufactured homes permanently affixed to
the underlying property (when deemed to be
real property under state law).
Adoption of a Final Common Rule
The agency specific adoption of the
final common rule, w hich appears at the
end of the common preamble, appears
below.
List of Subjects
12 CFR Part 34
Mortgages, National banks, Real estate
appraisals, Real estate lending
standards, Reporting and recordkeeping
requirements.
Authority: 12 U.S.C. 1 et seq., 93a, 371,
1701j-3,1828(o), and 3331 et seq.
2.
A new Subpart D—Real Estate
Lending Standards is added to part 34
to read as follows:
Subpart D—Real Estate Lending Standards
Sec.
34.61 Purpose and scope.
34.62 Real estate lending standards.
Appendix A to Subpart D o f Part 34—
Interagency Guidelines for Real Estate
Lending Policies
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
standards for real estate lending to be
used by national banks in adopting
internal real estate lending policies.
§34.62 Real estate lending standards.
(a) Each national bank shall adopt and
maintain written policies that establish'
12 CFR Part 208
appropriate limits and standards for
extensions of credit that are secured by
Accounting, Agriculture, Banks,
liens on or interests in real estate, or
banking, Confidential business
that
are made for the purpose of
information, Currency, Federal Reserve
financing perm anent improvements to
System, Real estate lending standards,
real estate.
Reporting and recordkeeping
(b)(1) Real estate lending policies
requirements, Securities.
adopted pursuant to this section must:
12 CFR Part 365
(ij Be consistent w ith safe and sound
banking practices;
Banks, banking, Credit, Mortgages,
(ii) Be appropriate to the size of the
Real estate appraisals, Real estate
lending standards. Savings associations. institution and the nature and scope of
its operations; and
12 CFR Part 545
(iii) Be reviewed and approved by the
bank’s board of directors at least
Accounting, Consumer protection,
annually.
Credit, Electronic funds transfers,
(2) The lending policies must
Investments, M anufactured homes,
Mortgages, Reporting and recordkeeping establish:
(i) Loan portfolio diversification
requirements, Savings associations.
standards;
(ii) Prudent underw riting standards,
12 CFR Part 563
including loan-to-value limits, that are
Accounting, Advertising, Crime,
clear and measurable;
Currency* Flood insurance, Investments,
(iii) Loan adm inistration procedures
Reporting and recordkeeping
for the bank’s real estate portfolio; and
requirements, Savings associations,
(iv) Documentation, approval, and
Securities, Surety bonds.
reporting requirem ents to m onitor
com pliance w ith the bank's real estate
lending policies.
I. Office of the Comptroller of the
(c) Each national bank must monitor
Currency
conditions in the real estate market in
12 CFR Part 34
its lending area to ensure that its real
estate lending policies continue to be
For the reasons set out in the
appropriate for current market
preamble, part 34 of chapter I of title 12
conditions.
of the Code of Federal Regulations is
(d) The real estate lending policies
amended as set forth below;
adopted pursuant to this section should
reflect consideration of the Interagency
PART 34—[AMENDED]
Guidelines for Real Estate Lending
1. The authority citation for part 34 is Policies established by the Federal bank
revised to read as follows:
and thrift supervisory agencies.
3. A ppendix A is added to subpart D
of part 34 to read as set forth at the end
of the preamble.
Appendix A to Subpart D of Part 34—
Interagency Guidelines for Real Estate
Lending
II. Federal Reserve System
12 CFR Part 208
For the reasons set out in the
preamble, the Board of Governors
am ends 12 CFR part 208 as set forth
below:
PART 208—MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
1. The authority citation for 12 CFR
part 208 is revised to read as follows:
Authority: Secs. 9 ,11(a), 11(c), 19, 21, 25
and 25(a) of the Federal Reserve Act, as
amended (12 U.S.C. 321-338, 248(a), 248(c),
461, 481-486,601, and 611, respectively);
secs. 4 ,13(j), 18(o), and 38 of the Federal
Deposit Insurance Act, as amended (12
U.S.C. 1814,1823(j), 1828(o), and 1831o,
respectively); sec. 7(a) of the International
Banking Act of 1978 (12 U.S.C 3105); secs.
907-910 of the International Lending
Supervision Act of 1983 (12 U.S.C. 39063909); secs. 2 ,12(b), 12(g), 12(i), 15B(c)(5),
17,17A, and 23 of the Securities Exchange
Act of 1934 (15 U.S.C. 78b, 781(b), 781(g),
781(i), 78o-4(c)(5), 78q, 78q-l, and 78w,
respectively); sec. 5155 of the Revised
Statutes (12 U.S.C 36) as amended by the
McFadden Act of 1927; and secs. 1101-1122
of the Financial Institutions Reform,
Recovery, and Enforcement Act of 1989 (12
U.S.C 3310 and 3331-3351).
2. A new Subpart C, comprising
§§ 208.51 through 208.52, is added to
part 208 to read as follows:
Subpart C—Real Estate Lending Standards
Sec.
208.51 Purpose and scope.
208.52 Real estate lending standards.
Subpart C—Real Estate Lending
Standards
S 208.51
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
standards for real estate lending to be
used by state member banks in adopting
internal real estate lending policies.
$ 208.52 Real estate lending standards.
(a) Each state bank that is a member
of the Federal Reserve System shall
adopt and maintain written policies that
establish appropriate limits and
standards for extensions of credit that
are secured by liens on or interests in
real estate, or that are made for the
62900 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
§ 365.1 Purpose and scope.
purpose of financing perm anent
improvements to real estate.
This part, issued pursuant to section
(b)(1) Real estate lending policies
304 of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
adopted pursuant to this section must:
(ij Be consistent w ith safe and sound
12 U.S.C. 1828(o), prescribes standards
banking practices:
for real estate lending to be used by
(ii) Be appropriate to the size of the
insured state nonm ember banks
institution and the nature and scope of
(including state-licensed insured
its operations: and
branches of foreign banks) in adopting
(iii) Be reviewed and approved by the internal real estate lending policies.
bank’s board of directors at least
§ 365.2 Real estate lending standards.
annually.
(a) Each insured state nonmem ber
(2) The lending policies must
bank shall adopt and maintain written
establish:
policies that establish appropriate limits
(i) Loan portfolio diversification
and standards for extensions of credit
standards:
that are secured by liens on or interests
(ii) Prudent underw riting standards,
in real estate, or that are made for the
including loan-to-value limits, that are
purpose of financing perm anent
clear and measurable;
improvements to real estate.
(iii) Loan adm inistration procedures
(b)(1) Real estate lending policies
for the bank's real estate portfolio; and
adopted pursuant to this section must:
(iv) Documentation, approval, and
(ij Be consistent with safe and sound
reporting requirements to monitor
banking practices;
compliance with the bank's real estate
(ii) Be appropriate to the size of the
lending policies,
institution and the nature and scope of
(c) Each state member bank must
its operations; and
monitor conditions in the real estate
(iii) Be reviewed and approved by the
market in its lending area to ensure that
bank's board of directors at least
its real estate lending policies continue
annually.
to be appropriate for current market
(2) The lending policies must
conditions.
establish:
(d) The real estate lending policies
0) Loan portfolio diversification
adopted pursuant to this section should
standards;
reflect consideration of the Interagency
{ii) Prudent underw riting standards,
Guidelines for Real Estate Lending
including loan-to-value limits, that are
Policies established by the Federal bank clear and measurable;
and thrif^ supervisory agencies.
(iii) Loan administration procedures
3.
A new A ppendix C is added to partfor the bank's real estate portfolio; and
208 to read as set forth at the end of the
(iv) Documentation, approval, and
preamble.
reporting requirements to monitor
compliance with the bank's real estate
Appendix C So Part 208— Interagency
lending policies.
Guidelines for Real Estate Lending
(c) Each insured state nonmember
Policies
bank must monitor conditions in the
real estate market in its lending area to
ensure that its real estate lending
policies continue to be appropriate for
ill. Federal Deposit Insurance
current market conditions.
Corporation
(d) The real estate lending policies
adopted pursuant to this section should
12 CFR Part 365
reflect consideration of the Interagency
For the reasons set out in the
Guidelines for Real Estate Lending
preamble, the Board of Directors of the
Policies established by the Federal bank
Federal Deposit Insurance Corporation
and thrift supervisory agencies.
amends 12 CFR chapter III as set forth
2.
Appendix A is added to part 365
below:
to read as set forth at the end of the
1. Part 365 is added to read as follows: preamble.
PART 365— REAL ESTATE LENDING
STANDARDS
Sec.
Appendix A to Part 365— Interagency
Guidelines for Real Estate Lending
Policies
365.1 Purpose and scope.
365.2 Real estate lending standards.
Appendix A to Part 365— Interagency
Guidelines for Real Estate Lending
Policies
Authority: 12 U.S.C. 1828(o).
IV. Office of Thrift Supervision
12 CFR Parts 545 and 563
For the reasons set out in the
preamble, the Office of Thrift
Supervision am ends parts 545 and 563,
chapter V, title 12 of the Code of Federal
Regulations, as follows:
SUBCHAPTER C—REGULATIONS FOR
FEDERAL SAVINGS ASSOCIATIONS
PART 545—{AMENDED]
1. The authority citation for part 545
continues to read as follows:
Authority: 12 U.S.C. 1462a, 1 4 6 3 ,1 4 6 4 ,
1828.
2. Section 545.32 is am ended by
removing paragraph (b)(2), redesignating
paragraph (b)(1) as paragraph (b)(2);
removing the phrase “Subject to the
lim itations of § 545.33(e)” where it
appears in paragraph (b)(3) and adding
in lieu thereof the phrase ‘‘Subject to the
lim itations of § 545.33(c)”; by adding a
new paragraph (b)(1); and by revising
paragraph (d) to read as follows:
§ 545.32 Real estate loans.
*
*
*
*
*
(b) Genera!—(1) Beal estate lending
standards. Federal savings associations
shall establish prudent real estate
lending standards, including
requirem ents on disbursements,
maximum loan terms, amortization, and
repayment.
*
*
*
*
*
(d) Loan-to-value ratios, (1) Loan-tovalue ratios shall be determ ined in
accordance w ith §§ 563.100 and 563,101
of this chapter.
(2) For private mortgage insurance
requirements in accordance w ith
§§ 563.100 and 563.101 of this chapter,
a Federal savings association shall
require insurance or guarantees by a
mortgage insurance company that the
Federal Home Loan Mortgage
Corporation of the Federal National
Mortgage Association have determined
to be a "qualified private insurer,”
§545.33 [Amended]
3. Section 545.33 is am ended by:
a. Removing paragraphs (a) ana (b);
b. Redesignating paragraphs (c)
through (h) as paragraphs (a) through (f).
respectively;
c. By removing the phrase ‘‘pursuant
to § 545.32(d) of this part” where it
appears in the first sentence of newly
designated paragraph (b)(1) and adding
in lieu thereof the phrase “pursuant to
§§ 563.100 and 563.101 of this chapter”;
(d) By removing the phrase
“authorized by paragraph (c) or (e) of
this section” where it appears in the
second sentence of new ly designated
paragraph (b)(1) and adding in lieu
thereof the phrase “authorized by
paragraph (a) or (c) of this section";
e. By removing the phrase “the
requirem ents of this paragraph (d),"
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62901
w here it appears in the third sentence
of the new ly designated paragraph (b)(1)
and adding in lieu thereof the phrase
“the requirements of this paragraph
(b),”.
f. By removing the phrase "pursuant
to the paragraph (e)(2)(A) of this section”
where it appears in the third sentence
of newly designated paragraph (b)(1)
and adding in lieu thereof the phrase
“pursuant to paragraph (c)(2)(i) of this
section”;
g. By removing the phrases "pursuant
to paragraph (c) or (e) of this section”
and “perm issible under § 545.32(d) of
this part” where they appear in the
introductory text of newly designated
paragraph (b)(2) and adding in lieu
thereof the phrases “pursuant to
paragraph (a) and (c) of this section”
and “perm issible under §§ 563.100 and
563.101 of this chapter”, respectively;
h. By removing the phrase “and shall
be repayable w ithin eighteen m onths”
where it appears in new ly designated
paragraph (e);
i. And by removing the phrase
"§ 545.33(c) and (e)” where it appears in
newly designated paragraph (f) and
adding in lieu thereof the phrase
"§ 545.33(a) and (c)” .
4. Section 545.35 is am ended by
removing paragraphs (a) through (c), by
redesignating paragraph (d) as
paragraph (b), and by adding a new
paragraph (a) to read as follows:
§ 545.35 Other real estate loans.
*
*
*
*
*
(a) A Federal association shall apply
standards as established in accordance
with § 545.32(b)(1) of this part.
*
*
*
*
*
5. Section 545.36 is am ended by
revising paragraphs (a) and (b) to read
as follows:
§ 545.3$ Loans to acquire or Improve real
estate.
*
*
*
*
*
(a) Such loans shall adhere to the
standards adopted u nder §§ 563.100 and
563.101 of this chapter.
(b) Such loans shall be repayable in
accordance w ith § 545.32(b)(1) of this
part.
*
*
*
*
*
6. Section 545.37 is am ended by
removing paragraphs (c) and (d) and
revising paragraph (b) to read as follows:
§545.37 Combination loans.
*
*
*
*
*
(b) The standards applicable in
§ 545.32(b)(1) shall apply w ith respect
to a combination of loans to finance
development of real estate and loans on
building lots and sites and/or
construction loans, w hether or not
development has been completed.
§545.40 [Amended]
7. Section 545.40 is am ended by
removing the phrase “in this part”
w here it appears in the introductory text
to the section; and by removing the
phrase “specified in § 545.32(d)" where
it appears in the concluding text of the
section and adding in lieu thereof the
phrase “specified in §§ 563.100 and
563.101 of this chapter”.
8. Section 545.42 is revised to read as
follows:
§ 545.42 Home improvement loans.
For any home improvement loan,
w ith or w ithout security, made pursuant
to section 5(c)(l)(J) of the Act, Federal
savings associations shall establish
prudent lending standards, including
requirem ents on disbursements,
maximum loan terms, amortization and
repayment. No loan contract may
provide for the deferral and
capitalization of interest on a loan made
under this section.
§545.45 [Amended]
9. Section 545.45 is am endad by
removing the phrase “authorized under
§ 545.33(c) and (e) of this part” where it
appears in paragraph (d)(2)(ii) and
adding in lieu thereof the phrase
“ authorized under § 545.33(a) and (c) of
this part”; and by removing the phrase
“may be treated as a home loan under
§ 545.33” where it appears in paragraph
(d)(3)(i) and adding in lieu thereof the
phrase “may be treated as a home loan
under §§ 563.100 and 563.101 of this
chapter”.
SUBCHAPTER D—REGULATIONS
APPLICABLE TO ALL SAVINGS
ASSOCIATIONS
PART 563— OPERATIONS
10. The authority citation for part 563
continues to read as follows;
Authority: 12 U.S.C. 1462,1462a, 1463,
1464,1467a, 1468,1817, 1828, 3806; 42
U.S.C. 4106; Pub. L. 102-242, sec. 306,105
Stat. 2236, 2355 (1991).
§563.97 [Amended]
11. Section 563.97 is am ended by
removing the phrase “may do so only if
such loans comply with § 545.38(a) or
§ 545.32(d)(2) of this chapter” where it
appears in paragraph (a) and adding in
lieu thereof the phrase “may do so only
if such loans comply w ith § 545.38(a) or
§§ 563.100 and 563.101 of this chapter”.
12. New §§ 563.100 and 563.101 are
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 of this
subpart, issued pursuant to section 304
of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
12 U.S.C. 1828(o), prescribes standards
for real estate lending to be used by
savings associations and all their
includable subsidiaries, as defined in 12
CFR 567.1 (1), over w hich the savings
associations exercise control, in
adopting internal real estate lending
policies.
S563.101
Real estate lending standards,
(a) Each savings association shall
adopt and maintain written policies that
establish appropriate limits and
standards for extensions of credit that
are secured by hens on or interests in
real estate, or that are made for the
purpose of financing perm anent
improvements to real estate.
(b)(1) Real estate lending policies
adopted pursuant to this section must:
(1) Be consistent w ith safe and sound
banking practices;
(ii) Be appropriate to the size of the
institution and the nature and scope of
its operations; and
(iii) Be reviewed and approved by the
savings association’s board of directors
at least annually.
(2) The lending policies must
establish:
(i) Loan portfolio diversification
standards;
(ii) Prudent underw riting standards,
including loan-to-value limits, that are
clear and measurable;
(iii) Loan adm inistration procedures
for the savings association’s real estate
portfolio; and
(iv) Documentation, approval, and
reporting requirements to monitor
compliance w ith the savings
association’s real estate lending policies,
(c) Each savings association must
monitor conditions in the real estate
market in its lending area to ensure that
its real estate lending policies continue
to be appropriate for current market
conditions.
(d) The real estate lending policies
adopted pursuant to this section should
reflect consideration of the Interagency
Guidelines for Real Estate Lending
Policies established by the Federal bank
and thrift supervisory agencies.
13. A ppendix A is added to subpart
D of part 563 to read as set forth at the
end of the preamble.
Appendix A to Subpart D of Part 563—
Interagency Guidelines for Real Estate
Lending
Dated: November 22,1992.
By the Office of the Comptroller of the
Currency.
Stephen R. Steinlirink,
Acting Comptroller of the Currency.
Dated: December 2,1992.
62902 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
By the Board of Governors of the Federal
Reserve System.
By the Office of Thrift Supervision.
Timothy Ryan,
William W. Wilea,
Director.
Secretary o f the Board o f Governors o f the
Federal Reserve System,
IFR
October 27.1992.
By The Federal Deposit Insurance
Corporation.
Hoyle L. Robinson,
Datod:
Executive Secretary.
Dated:
November 5.1992.
Doc. 9 2 -31481 Filed 12-30-92: 8:45 am]
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