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FEDERAL RESERVE BANK
OF NEW YORK
I- Circular No.
10619 ~|
January 2 0 , 1993
UNIFORM REAL ESTATE LENDING STANDARDS
Effective March 19, 1993
To All State Member Banks, Bank Holding Companies,
and Branches and Agencies of Foreign Banks in the
Second Federal Reserve District, and Others Concerned:
Following is the text of a statement by the Board of Governors of the Federal
Reserve System:
T h e F ed eral R e se r v e B oard has an n o u n ced ad op tion o f fin a l am en d m en ts and
g u id e lin e s to R egu lation H (M em b ersh ip o f State B an k in g In stitu tio n s in th e F ed eral
R e se r v e S y ste m ) to im p lem en t u n iform real esta te len d in g standards, as m an d ated b y
S e c tio n 3 0 4 o f th e F ed eral D e p o sit In su ran ce C orporation Im p rovem en t A ct o f 1 9 9 1
(F D IC IA ).
T h e a m en d m en ts p rescrib e standards for e x te n sio n s o f cred it secu red b y lie n s on
real esta te or m a d e for th e p u rp o se o f fin a n c in g p erm an en t im p ro v em en ts to real estate.
T h e standards w ere d e v e lo p e d in c o n su lta tio n w ith th e O ffic e o f th e C o m p tro ller
o f th e C urrency, the O ffic e o f T h r ift S u p e r v isio n , and the F ed eral D e p o s it In su ran ce
C orporation.
T h e u n ifo rm regu lation s b e c o m e e ffe c tiv e M arch 1 9 , 1 9 9 3 .
Enclosed — for State m em ber banks, bank holding com panies, branches and
agencies of foreign banks, and others who m aintain sets of the B oard’s regulations
— is an excerpt from the Federal Register of D ecem ber 3 1 , 1 9 9 2 containing the
official notice of this action by the Federal regulatory agencies, including the text
of the am endm ents to the B oard’s Regulation H (1 2 CFR Part 208). A dditional,
single copies of the enclosure can be obtained at this Bank (3 3 Liberty Street) from
the Issues Division on the first floor, or by calling our Circulars Division (Tel. No.
2 1 2 -7 2 0 -5 2 1 5 or 5216 ).
Questions on this m atter may be directed to Barbara A. Klein, M anager of our
Dom estic Banking D epartm ent (Tel. No. 2 1 2 -7 2 0 -8 3 2 4 ).
E.
G
er ald
C
o r r ig a n
,
President.
Department of the
Treasury
Office of the Comptroller of the Currency
12 CFR Part 34
Office of Thrift Supervision
12 CFR Parts 545 and 563
Federal Reserve System
12 CFR Part 208
Federal Deposit Insurance Corporation
12 CFR Part 365
Real Estate Lending Standards; Final
Rule
IEnc. Cir. No. 106I9J
6 2 8 9 0 Federal Register T 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
12 CFR Part 365
RIN 3064-AB05
DEPARTMENT OF THE TREASURY
Office of Thrift Supervision
12 CFR 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 Corporation (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 rule
prescribes real estate lending standards
that require each insured depository
institution to adopt and maintain
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 administration 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 of its
operations, and must be reviewed and
approved by the institution’s board of
directors at least annually. The policies
adopted by the institution also should
reflect consideration of 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) 874—
5170; 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).
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.t
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 whether 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 within 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 without LTV limits, or any
other specific lending standards.
Instead, Congress mandated 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, which ended on
August 31,1992.
Chi August 17,1992, a supplement to
the Joint Proposal was published by the
OCC and the OTS in the Federal
Register, 57 FR 36911. The
supplementary analysis provided, for
public comment, a description of the
estimated costs and benefits that were
likely to accrue as a result of
implementing the Joint Proposal.
B. The Joint Proposal: Two Alternatives
The Joint Proposal took the form of
two alternative regulations, both of
which would establish an LTV
framework for real estate lending. Under
the first alternative (Alternative 1), each
’ Pub. L. No. 1 0 2 - 2 42,105 Stat 2236, 235*
(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 6 2 8 9 1
insured depository institution would 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 within or below
the following ranges of maximum ratios:
Category of real estate loan
Raw la n d ..........................................
Pre-constructem development----Construction and land development .
Improved Property’ ---------------Owner-occupied 1- to 4-tamHy reeldental property_______________
Home equity..... .............. ................
R an ged
maximum
pem w stae
LTV m o e
(percent)
50
55
65
66
to as
to 70
to 80
to 80
* 8 0 to 95
* 8 0 to 95
’ Imoroved mom'Iv tom Inctodi nlm toM of
m cufd by on* <* *e roeo»*ig m m of reef pnoeity: to)
fermend OQMmd to onptwQ ft^cutuni ptooucMn, (b)
non-ownaraocuped 1- to 4-Wnly raoioorttil proofty (c)
mutb-Wnoy moqohW pooofiyi m oooipmoo oommro I
prooeny; or (01 omar lnoano-orodudng procortv tool boo
boon h m po m m o to mwooto tor occuoency md uoo.
•Any pomoh of e loan eeDeedmg 86 percent LTV ewet be
I by pom
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 folly 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 of fe d estate loan
Raw land
Pre-construction development___ __...
Construction and land development
Owner-occupied 1- to 4-temiy reeldentlal p r o p e r t y ___
Home nqiA y........................................
Maximum
LTV ratio
(percent)
60
65
*75
*75
*9 5
*9 5
'Only Ncerteta cowdMow ere met. ethemtee 66 percent
•Only Mto# credit ononm , 0M W 1 06 paomL
•Only «Mh private mongaga tneunraa eStenelcc 80
percent
For both proposed alternatives,
institutions would be expected to base
real estate loans on proper loan
documentation and e recent appraisal or
evaluation of the real property
received from approximately 37
professional and trade associations,
including community 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. Non-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
companies 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
C. Summary of Comments Received
and bank holding companies with
national bank subsidiaries; 75 from state
2. Comments Received, by Agency
banks, savings banks, holding
a. Federal Deposit Insurance
companies with state bank subsidiaries,
Corporation
and savings and loan associations; 20
from industry trade associations; and 11
The FDIC received over 1,360
from other industry-related participants,
comment letters in response to the
professionals, firms, and governing
request for comments on the Joint
Proposal. Of that number,
organizations. The OCC received 960
letters, or about 77 percent of the total,
approximately 342 were received from
from the real estate industry, consisting
the financial services industry and
of: 370 from real estate and property
related trade associations, as follows:
284 from depository institutions, 12
management firms, associations,
from depository institution holding
brokers, agents, and local real estate
companies, and 46 from depository
boards, 508 from residential home
institution trade associations.
builders and their trade associations; 53
Approximately 852 of the total number
from individuals and firms involved in
of comment letters were received from
commercial construction and
the real estate industry and related trade development; and 29 from other
associations, as follows: 421 from real
industry-related professionals, councils,
estate brokers and agents, 27 from real
and service providers. The remaining
estate brokers' trade associations, 145
letters were from other interested
from residential home builders, 37 from organizations and individuals
commercial construction firms, 136
including: 8 from mortgage insurance
from builders and developers, and 86
underwriters and agents, 6 from
from home building trade associations.
mortgage corporations, 8 from
The remaining comment letters were
appraisers and their trade association,
underlying the loan, in conformance
with the agencies' respective appraisal
regulations and guidance. The LTV ratio
would be defined by taking the total
amount 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 would be combined
with the amount of all senior liens when
calculating the ratio.
In the Joint Proposal, the agencies
requested comment on a number of
issues, including whether the
implementation of LTV limits would be
an appropriate response to the
Congressional directive to set real estate
lending standards; whether the
proposed LTV categories and ratios
would be appropriate; whether the
proposed nonconforming loan
exemption would be adequate; whether
additional loan categories or exceptions
for specific lending arrangements were
needed; whether the proposed
exclusions from the LTV limits would
be adequate; whether 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 whether institutions that
qualify as “well capitalized” for
purposes of Prompt Corrective Action
under Section 38 of the Federal Deposit
Insurance Act, 12 U.S.C. 1831o, should
be given additional flexibility under the
proposed standards.
6 2 8 9 2 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1902 / Rules and Regulations
14 from local affordable housing
corporations and associations, and 9
from law firms and bar associations.
d. Office of Thrift Supervision
The OTS received approximately
1,100 comments in response to the Joint
Proposal. Approximately 431 comments
were received from builders and
developers, 404 of whom are primarily
involved in residential construction and
development, and 57 of whom are
primarily involved in commercial
construction and development. The
remaining comments were submitted by
307 realtors; 147 trade associations
representing various industries,
including 107 home builders
associations; 116 financial institutions,
including 38 federal savings banks and
41 savings associations; 15 individuals;
8 federal and state governmental or
quasi-govemmental agencies; 7
community development associations; 7
building suppliers; 6 public interest/
community groups; 5 appraisers; 5
consulting firms; 5 mortgage insurance
companies; 4 law firms; 3 mortgage
bankers; 2 title insurance companies; 1
Member of Congress; and 1 unidentified
party.
2. Joint Agency Summary
Almost all commenters expressed
concern with at least some aspect of the
Joint Proposal. While many of the
commenters acknowledged the
significant real estate lending abuses of
the 1980’s, and the substantial losses to
lenders that have resulted, a majority
did not believe that a congressionally
mandated regulation providing real
estate lending standards offered a
solution to the problem.
Numerous commenters characterized
the Joint Proposal as unnecessary in the
current real estate lending environment
and urged that the agencies adopt
flexible guidelines, rather than
regulations. Comments received from
lenders further highlighted their
concern over the additional regulatory
burden occasioned by the proposal.
Numerous lenders asserted that the Joint
Proposal would impose significant new
monitoring and management costs
without ensuring corresponding
increases in the safety or soundness of
their lending operations.
Commenters also stated that the
proposed LTV standards could impede
future economic growth, particularly if
proposed benchmark LTV limits (as
included in Alternative 1) were treated
as maximum allowable LTV ratios by
lenders and examiners. In particular,
commenters expressed concern that the
65 percent LTV benchmark for
construction lending could be perceived
by lenders as an implied maximum. A
few commenters, on the other hand,
encouraged the agencies to take a strong
stand, even endorsing additional
regulatory requirements, in order to
prevent a recurrence of abusive real
estate practices and resulting losses in
the future.
Many commenters, especially those
from the home building industry,
requested that loans secured by
residential property be excluded from
the Joint Proposal. Commenters also
expressed a desire that the Joint
Proposal be narrowed to focus on what
are considered "true” real estate loans
and particularly those types on which
lenders have suffered substantial losses.
The need to exclude ordinary business
loans and lines of credit in which real
estate is taken as part of the collateral
was highlighted by lenders.
Concerning the implementation of a
loan-to-value framework, many
commenters expressed the view that the
Joint Proposal placed too much reliance
on LTV ratios as an indicator of credit
quality. The commenters generally
acknowledged that LTV ratios are
typically employed by lenders to
determine the extent to which they are
willing to lend on particular real estate
parcels or projects. Commenters also
acknowledged that LTV ratios are
generally well-understood in the market
and readily calculated, although some
concern was expressed over the quality
of appraised values. A majority of
commenters stressed that the LTV ratio
is only one of several credit factors used
when determining the overall credit
worthiness of a real estate project and is
often not the most important.^ number
of commenters recommended the use of
debt service coverage ratios when
analyzing credits to emphasize reliance
on the primary source of repayment
rather tnan collateral value when
analyzing credits. Other commenters
thought it inappropriate to adopt
standards using a debt service coverage
ratio because this ratio is not typically
used in all types of real estate lending
and acceptable debt coverage ratios vary
significantly from one real estate project
to another.
Concerning the application to LTV
limits to individual real estate lending
categories, nearly all commenters from
the home building industry and many
other commenters requested that
residential construction be separated
from commercial construction and
assigned a higher maximum LTV ratio.
A number of commenters also requested
higher LTV limits for specific types of
real estate lending. Some commenters
also sought clarification on applying
LTV limits to combination loans,
pooling arrangements, and crosscollateralized loans.
Commenters were divided on their
preference between Alternatives 1 and 2
for implementing an LTV framework.
Generally, they preferred the higher
LTV limits and flexibility associated
with Alternative 1 but many disliked
the concept of a range of maximum LTV
ratios. A substantial number of
commenters preferred the simplicity
and implied lower burden of
recordkeeping associated with
Alternative 2.
Commenters strongly favored the
concept of allowing lenders to make a
limited amount of prudently
underwritten loans that exceed LTV
limits. However, a number of
commenters felt that the proposed
“basket" for such loans (15 percent of
total capital) was too small, with 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 limits and allow
some new funds for renewals,
refinancings, and restructurings of
loans, particularly when needed to
preserve collateral value.
Finally, the comment letters raised
numerous 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
number of commenters expressed
concern that rigid application of a
regulation implementing LTV ratios
would constrict credit, impose
additional lending costs, reduce lending
flexibility, impede economic growth,
and cause other undesirable
consequences. Many 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
without producing such adverse
consequences.
After reviewing the numerous
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 6 2 8 9 3
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 with 1- to 4family residential lending, the LTV
standards incorporated into the
Guidelines differentiate between
construction loans for 1- to 4-family
residential property and other property.
In addition, the Guidelines do not
specify an LTV limit for permanent
mortgages on owner-occupied 1- to 4family residential property and for
home equity loans, as a general matter.
The Guidelines do specify, however,
that a permanent residential mortgage or
home equity loan originated with a
loan-to-value that equals or exceeds 90
percent should have appropriate credit
enhancement in the form of mortgage
insurance or readily marketable
collateral.1
Many commenters raised objections to
the scope of the Joint Proposal.
Generally, as indicated above, a number
of commenters urged that the rule focus
only on "true” real estate loans, and
exclude business loans and lines of
credit in which real estate is taken as
part of the collateral. The agencies agree
that an institution may appropriately
craft its lending policies to address
extensions of credit secured by an
interest in real estate but not principally
underwritten in reliance upon the real
estate collateral. The Guidelines permit
such an approach.
Although most commenters generally
favored the concept of allowing lenders
to make a limited amount of prudently
E. The Interagency Guidelines for Real believed that the ratios stated in
underwritten loans in excess of the LTV
Estate Lending Policies
Alternative 2 were too low and would
limits, many commenters expressed
In order to supplement and clarify the constrict the availability of credit. In
concern that the size of the basket
response, the agencies have
standards stated in the final rule, the
proposed by the agencies for such loans
incorporated a substantially revised
agencies have adopted Interagency
was not meaningful, and that the task of
LTV framework into the Guidelines. The managing the contents of the basket
Guidelines for Real Estate Lending
LTV framework has been adopted in
Policies (Guidelines). The Guidelines
would be burdensome. In addition to
describe the criteria and specific factors guideline form, rather than in a
redesignating such loans as "loans in
regulation, in order to add flexibility.
that the agencies expect insured
Under the Guidelines, institutions may
institutions to consider in establishing
■ This requirement is ■ change from the current
lend in excess of the supervisory LTV
OTS regulation on private mortgage insurance (PMI)
their real estate lending polides.
requirements. The current OTS rale requires a
limits where credit is justifiable under
1. Summary of the Guidelines
home loan with an LTV ratio in excess of 90 percent
the specific circumstances.
to have PMI coverage for the amount of the loan in
In general, the Guidelines identify the Nevertheless, the agencies believe that
excess of the 80 percent LTV ratio. The OTS is
loan portfolio management and
LTV limits are an important element of revising its current regulatory requirement to
compart with the Guidelines. OTS is not, however,
underwriting considerations that the
prudent underwriting criteria and that
agendas believe should be addressed in lenders should carefully set and follow revising its current risk-based capital home loans,
to be eligible for the favorable SO percent riska sound real estate lending policy. The
such limits.
weight category, to be no greater man an 80 percent
In specifying LTV ratios in the
Guidelines also address the need to
LTV ratio (or have PMI coverage for the amount of
establish loan administration
Guidelines, the agencies have made a
the loan in excess of 80 percent). Thus, thrift
institutions will have the option, for high-LTV-ratio
procedures for real estate loans, and the number of other modifications to take
home loans, of either obtaining PMI coverage for the
account of suggestions or objections
need for an appropriate review and
amount of home loans in excess of 80 percent and
approval process for loan proposals that stated by commenters. Many
holding 4 percent capital, or of obtaining leas (or
no) PMI coverage and holding 8 percent capital.
would be exceptions to the institution's commenters, especially those from the
OTS believes that this differential capital treatment
general lending polides. In addition to
home building industry, requested that
is
given the
identifying the types of underwriting
loans secured by residential property be of appropriate,OTS plansdifference in risk of lo u
such loans.
to work with the other
standards and requirements that should excluded from the Joint Proposal, or that agendes on the adoption of a uniform capital
treatment of home loans.
be induded in a sound real estate
a higher LTV limit be applied to loans
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 number of standards
with regard to real estate lending.
The final rule requires institutions to
establish and maintain written internal
real estate lending policies. Each
institution’s lending policies must be
consistent with 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
underwriting standards, including LTV
limits, that are clear and measurable;
establish loan administration
procedures for the institution’s reel
estate portfolio; and establish
documentation, approval, and reporting
requirements to monitor compliance
with the institution’s real estate lending
policies.
The institution’s written real estate
lending policies must 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 agendas in
conjunction with the final rule.
lending policy, the Guidelines provide
spedfic guidance on loan-to-value
limits for various categories of real
estate loans.
2. Issues Raised^ by Commenters and
Addressed by Guidelines
Many commenters expressed the view
that the approach taken in the Joint
Proposal placed too much emphasis on
LTV ratios. Numerous comments urged
the agencies to indude a measure of
flexibility to permit institutions to lend
beyond stated LTV limits when other
underwriting factors indicated that an
extension of credit could be made on a
safe and sound basis. The agencies have
developed the final rule, together with
the Guidelines, in response to these
comments. The agendes recognize that
creditworthy loans may be underwritten
at LTV levels that exceed those stated in
the Joint Proposal. The agendes also
recognize that simply satisfying an LTV
ratio requirement does not qpcessarily
ensure a prudent and collectable loan.
The agencies have conduded that a rule
that emphasizes only one element of the
underwriting process may not ensure
sound real estate lending or contribute
to the safety and soundness of the
financial system. The approach adopted
in the final rule and the Guidelines is
intended to provide insured depository
institutions and borrowers additional
flexibility while promoting prudent real
estate lending.
Many commenters objected to the
complexity and recordkeeping burden
associated with Alternative 1 as
6 2 8 9 4 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
excess of the supervisory LTV limits’*,
loans as “loans in excess of the
supervisory LTV limits”, 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
capital3, 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
internal 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. Other Considerations
1. Subsidiaries of 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
19,1992, Section 24(d) of the Federal
Deposit Insurance Act (12 U.S.C.
1831a(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 whether insured state bank
subsidiaries would be subject to
limitations on 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.* The
4
• For state member banks, the term "total capital"
1
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 I 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# 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 whether
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
are 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
capital 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 not 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 Holding Companies and Their
Nonbank Subsidiaries
The Board sought comment on
whether, to what extent, and the manner
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
commenters’ 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 number of
commenters argued that the proposed
real estate lending standards should not
be imposed on bank holding companies
and their nonbank 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
companies 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 bank holding
companies and nonbank subsidiaries for
sale to secondary market investors
already are subject to significant
underwriting 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 companies 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 companies 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 of
Foreign Banks
A few commenters raised a question
as to how U.S. branches and agencies of
foreign banks will 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 FDIC has revised its final rule to
clarify that the rule applies to state-?
licensed 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
[FDICIA].” FDICIA was enacted on
December 19,1991. In the Joint
Proposal, the agencies sought comment
on whether it would be appropriate, in
order to accommodate credit needs, to
phase-in the real estate lending
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 lending programs, and
change bank lending literature. A
number of these commenters also noted
that a phase-in period would ensure that
extensions of credit currently being
processed, but not yet funded, under
existing underwriting requirements will
remain unaffected by the final rule. A
few commenters also recommended that
the final rule could be phased-in by
category of loan, starting with those
categories representing the greatest risk
to 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
m inner 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 the
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
whether 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
lending 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 number 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 Order 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" within 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 nave customarily been an
62896 Federal ingjiter / 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) Would not have an
overall effect cm 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, within the
meaning of the Executive Order.
Accordingly, a regulatory impact
analysis is not required.
Paperwork 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 ofthe Paperwork
Reduction Act (441J.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
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 will 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 administration policies,
portfolio diversification standards, and
documentation, approval, and reporting
State member banks (Board)................... 985 requirements. The agencies will use this
information in their examination of
National banks (O O Q ----------— ..........3,750
Savings associations (OTS)....... ....... 2,000 institutions to ensure that the real estate
Estimated average annual burden per
loans made by those institutions are
recordkeeper (based on an initial
consistent with existing statutory and
3-year period)...................m. » « . m.40 hours regulatory criteria, with principles of
Estimated total annual recordkeeping
safety and soundness, and with relevant
burden:
policy guidance.
FDIC................................................... 302,000hours
the size of foe 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 foe 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
general outline of foe scope and distribution
of the institution's credit facilities and foe
manner in which real estate loans are made,
serviced, and collected. In particular, foe
institution's policies on real estate lending
should:
• Identify foe geographic areas in which
the institution will consider lending.
• Establish a loan portfolio diversification
policy and set limits for reel 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 foe board of directors.
The institution should consider both
Board....................
39,400 hours
internal and external factors in the
O C C .............................
150,000 hours Text of Final Common Rule
formulation of its loan policies and strategic
O TS .......................................................80,000hours
plan. Factors that should be considered
The text of the final common rule
include:
Comments concerning the accuracy of appears below:
• The size and financial condition of the
this estimate and suggestions on
institution.
Appendix to — Interagency
reducing the burden should be sent to
• The expertise and size of the lending
Guidelines tor Real Estate Lending
Gary Waxman, Office of Information
staff.
Policies
and Regulatory Affairs, Attention—
• The need to avoid undue concentrations
Paperwork Reduction Project Number:
The agencies' regulations require that each of risk.
3064-0112 (FDIC); 7100-AB42
• Compliance with all reel estate related
insured depository institution adopt and
(BOARD); 1557-0190 (OCC); 1550-0078 maintain a written policy that establishes
laws and regulations, including the
Community Reinvestment Act, anti(OTS), OMB, New Executive Office
appropriate limits and standards for all
Building, room 3208, Washington, DC
extensions of credit that are secured by liens discrimination laws, and for savings
associations, the Qualified Thrift Lender test.
20503; and to the appropriate agency, as on or interests in real estate or made for foe
• Market conditions.
purpose of financing foe construction of a
follows:
The institution should monitor conditions
building or other improvements.* These
FDIC. Assistant Executive Secretary
guidelines are intended to assist institutions in foe real estate markets in its lending area
(Administration), room F-453,
in foe formulation and maintenance of a real so that it can react Quickly to changes in
Paperwork Reduction Project Number
market conditions that are relevant to its
estate lending policy that is appropriate to
3064-0112, Federal Deposit Insurance
lending decisions. Market supply and
Corporation, Washington, DC 20429.
demand factors that should be considered
■ The agendas have adopted a uniform role on
Board. Mr. William W. Wiles,
include:
real estate lending. See 12 CFR part 345 (FDIC); 12
Secretary, Paperwork Reduction Project CFR pert 206, sufapart C (FRB); 12 CFR part 34.
• Demographic indicators, Including
population and employment trends.
subpart D (OCC); and 12 CFR 563.100-101 (OTS).
Number 7100-AB42, Board of
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 6 2 897
• Zoning requirements.
• Current and projected vacancy,
construction, and absorption rates.
• Current 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 die 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
agreements.
Loan Administration
The institution should also establish loan
administration procedures for its real estate
portfolio that address:
• Documentation, including:
• Type and frequency of financial
statements, including requirements for
verification of information provided by
the borrower.
• Type and frequency of collateral
evaluations (appraisals and other
estimates of value).
• Loan closing and disbursement.
• Payment processing.
• Escrow administration.
• Collateral adm inistration.
• Loan payoffs.
• Collections and foreclosure, including:
• Delinquency follow-up procedures.
• Foreclosure tim ing.
• E xten sion s and other forms o f
forbearance.
• Acceptance of deeds in lieu of
foreclosure.
• Claims processing [e.g., seeking recovery
on a defaulted loan covered by a government
guaranty or insurance program).
• Servicing and participation agreements.
Supervisory Loan-to-Value Limits
Institutions should establish their own
internal loan-to-value limits for real estate
loans. These internal-limits should not
exceed the following supervisory limits:
Loan category
Raw la n d .....................................................
Land develooment ....................................
Construction:
Commercial,
multifamily,1 and
other non residential.............
1- to 4-family residential .................
imnrovad nrooertv .....................................
Owner-occupied ' 1- to 4-famlly and
home e q u ity...................................
Loan-tovalue limit
(percent)
65
75
80
85
85
(*)
1Muttifamily construction Indudes condominiums and
cooperatives.
2A loan-to-value limit has not been established for
permanent mortgage or home equity loans on owneroccupied, 1- to 4-tamity residential property. However, for
any such loan with a loan-to-value ratio that equals or
exceeds 90 percent at origination, an Institution should
require appropriate credit enhancement in the form of either
mortgage insurance or readily marketable collateral.
T he supervisory loan-to-value lim its
sh ou ld be ap p lied to the underlying property
that collateralizes the loan. For loan s that
fund m u ltip le p h ases o f the sam e real estate
project (e.g., a loan for both land
d evelop m en t and construction o f an office
building), the appropriate loan-to-value lim it
is the lim it ap p licab le to the final p h ase o f
the project fun d ed b y the loan; h ow ever, loan
disb u rsem en ts sh ou ld not ex cee d actual
d evelop m en t or construction outlays. In
situ ation s w h ere a loan is fo lly crosscollateralized by tw o or m ore properties or is
secured by a collateral p ool o f tw o or m ore
properties, the appropriate m axim u m loan
am ount u nder supervisory loan-to-value
lim its is the sum o f the valu e o f each
property, less senior lien s, m u ltip lied b y the
appropriate loan-to-value lim it for each
property. T o en su re that collateral m argins
rem ain w ith in the su p ervisory lim its, lenders
sh ou ld redeterm ine con form ity w h en ever
collateral su b stitu tion s are m ade to the
collateral pool.
In estab lish in g internal loan-to-value
lim its, each len d er is ex p ected to carefully
con sid er the in stitu tion -sp ecific and market
factors listed un d er “ Loan Portfolio
M anagem ent C on sid eration s,” as w e ll as any
other relevant factors, su ch as the particular
subcategory or typ e o f loan. For any
subcategory o f loan s that exh ib its greater
credit risk than the overall category, a lender
sh ou ld con sid er the estab lish m en t o f an
internal loan-to-value lim it for that
subcategory that is low er than the lim it for
the overall category.
T h e loan-to-value ratio is o n ly o n e o f
several p ertinent credit factors to be
con sid ered w h en un d erw riting a real estate
loan. O ther credit factors to be taken into
accou n t are h igh ligh ted in the “ U nderw riting
Standards” section above. B ecause o f these
other factors, the estab lish m en t o f these
supervisory lim its sh ou ld not b e interpreted
to m ean that loan s at th ese le v e ls w ill
au tom atically be co n sid ered sound.
Loans in E xcess o f the S u p ervisory Loan-toV alu e Lim its
T h e agen cies recogn ize that appropriate
loan-to-value lim its vary n ot o n ly am ong
categories o f real estate loan s but a lso am ong
in d iv id u a l loans. Therefore, it m ay be
appropriate in in d iv id u a l ca ses to originate
or purchase loan s w ith loan-to-value ratios in
e x cess o f the su p ervisory loan-to-value
lim its, b ased o n th e support provid ed by
other credit factors. S u ch loan s sh o u ld be
id en tified in the in stitu tio n s’s records, and
their aggregate am oun t reported at least
quarterly to the in stitu tio n ’s board o f
directors. (S ee ad d ition al reporting
requirem ents d escrib ed u n d er “E xcep tion s to
the G eneral P o licy .”)
T h e aggregate am oun t o f all loan s in ex cess
o f the su p ervisory loan-to-value lim its sh o u ld
n ot ex cee d 1 0 0 p ercen t o f total cap ital.2
M oreover, w ith in the aggregate lim it, total
loan s for all com m ercial, agricultural,
m u ltifam ily or other n on-l-to-4 fam ily
resid en tial p roperties sh o u ld n ot ex ceed 3 0
percent o f total capital. A n in stitu tion w ill
com e un d er in creased sup ervisory scrutiny
as the total o f su ch loan s ap p roach es these
levels.
In d eterm in in g the aggregate am ount o f
su ch loans, in stitu tio n s should: (a) Include
all loan s secu red by the sam e property if any
o n e o f th ose loan s e x cee d s th e supervisory
loan-to-value lim its; and (b) in clu d e the
recourse ob ligation o f an y su ch loan sold
w ith recourse. C on versely, a loan sh o u ld no
lon ger be reported to th e directors as part o f
aggregate totals w h en red u ction in principal
or sen ior lien s, or ad d ition al contribution o f
collateral or eq u ity (e.g., im provem en ts to the
2 For the 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 described in table I 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).
6 2 8 9 8 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
real property secu rin g the loan), bring the
loan-to-value ratio in to com p lian ce w ith
supervisory lim its.
Excluded Transactions
T he agen cies a lso recogn ize that there are
a num ber o f len d in g situ ation s in w h ic h
other factors sign ifican tly ou tw eigh the n eed
to a p p ly the supervisory loan-to-value lim its.
T h ese include:
• Loans guaranteed or insured b y the U.S.
governm ent or its agen cies, p rovid ed that the
am ount o f the guaranty or insu ran ce is at
least equal to the portion o f the loan that
ex cee d s the supervisory loan-to-value lim it.
• Loans backed b y the fu ll faith an d credit
o f a state governm ent, provid ed that the
am ount o f the assurance is at least equal to
the portion o f the loan that ex cee d s the
supervisory loan-to-value lim it.
• Loans guaranteed or insured by a state,
m u n icip a l or lo ca l governm ent, or an agency
thereof, provid ed that the am ount o f th e
guaranty or insu ran ce is at least equal to the
portion o f the loan that ex cee d s the
supervisory loan-to-value lim it, and provided
that the len d er has determ ined that the
guarantor or insurer has the financial
capacity and w illin g n e ss to perform un d er
the terms o f the guaranty or insurance
agreement.
• Loans that are to b e so ld prom ptly after
origination, w ith in recourse, to a fin an cially
resp onsib le third party.
• Loans that are ren ew ed, refinanced, or
restructured w ith o u t the ad van cem en t o f new
fun d s or an increase in th e lin e o f credit
(excep t for reasonable c lo s in g costs), or loans
that are ren ew ed, refinanced, or restructured
in co n n ectio n w ith a w orkout situation,
either w ith or w ith o u t the advancem ent o f
n ew funds, w h ere co n sisten t w ith safe and
sou n d banking p ractices and part o f a clearly
d efin ed and w ell-d ocu m en ted program to
ach iev e orderly liq u id ation o f the debt,
red u ce risk o f lo ss, or m axim ize recovery on
the loan.
• Loans that facilitate the sale o f real estate
acquired by the len d er in the ordinary course
o f co llectin g a debt p rev iou sly contracted in
good faith.
• Loans for w h ich a lien on or interest in
real property is taken as ad d ition al collateral
through an abundance o f cau tion b y the
lender (e.g., the in stitu tion takes a blanket
lien on all or su b stan tially all o f the assets
o f the borrower, and the valu e o f the real
property is lo w relative to the aggregate value
o f all other collateral).
• Loans, su ch as w orking capital loans,
w h ere the len d er d o es not rely p rin cip ally on
real estate as security and ex ten sio n o f credit
is not u sed to acquire, d evelop , or construct
perm anent im provem en ts on real property.
• Loans for the p u rp ose o f finan cin g
perm anent im provem en ts to real property,
but not secured b y th e property, if su ch
security interest is not required by prudent
u nderw riting practice.
Exceptions to the General Lending Policy
S o m e p ro v isio n sh o u ld be m ade for the
co n sid eration o f loan requests from
creditw orthy borrowers w h o se credit n eed s
d o not fit w ith in th e in stitu tio n ’s general
len d in g p olicy. A n in stitu tion m ay provide
for prudently underw ritten ex cep tio n s to its
len d in g p o licies, in clu d in g loan-to-value
lim its, on a loan-by-loan basis. H ow ever, any
ex cep tio n s from the supervisory loan-tov alu e lim its sh ou ld conform to th e aggregate
lim its on su ch loan s d iscu ssed above.
T he board o f directors is resp onsib le for
estab lish in g standards for the review and
approval o f ex cep tio n loans. Each in stitu tion
sh ou ld estab lish an appropriate internal
p rocess for the review and approval o f loan s
that do not conform to its o w n internal p o lic y
standards. T h e approval o f any su ch loan
sh ou ld be supported by a w ritten justification
that clearly sets forth all o f the relevant credit
factors that support the underw riting
d ecision . T he justification and approval
d ocu m ents for su ch loans sh ou ld be
m aintained as a part o f the perm anent loan
file. Each in stitu tion sh ou ld m onitor
com p lian ce w ith its real estate len d in g p o licy
an d in d iv id u a lly report excep tion loan s o f a
significant siz e to its board o f directors.
S u p ervisory R ev iew o f R eal Estate L ending
P o licies and P ractices
T he real estate len d in g p o licies o f
in stitu tion s w ill b e evaluated by exam iners
during the course o f their exam in ation s to
d eterm ine if the p o lic ie s are con sisten t w ith
safe and sou n d len d in g practices, these
gu id elin es, and the requirem ents o f the
regulation. In evaluating the adequacy o f the
in stitu tion 's real estate len d in g p o lic ie s and
practices, exam iners w ill take in to
con sid eration the follow in g factors:
• T h e nature and scop e o f the in stitu tio n ’s
real estate len d in g activities.
• T h e size and financial con d ition o f the
institution.
• T h e quality o f the in stitu tion ’s
m anagem ent and internal controls.
• T he exp ertise and siz e o f the len d in g and
loan ad m in istration staff.
• Market con d ition s.
Lending p o licy excep tion reports w ill also
be review ed by exam iners during the course
o f their exam in ation s to determ ine w h eth er
the in stitu tion s’ excep tion s are adequately
d ocu m ented and appropriate in light o f all o f
th e relevant credit considerations. A n
ex cessiv e v o lu m e o f excep tion s to an
in stitu tion ’s real estate len d in g p o licy m ay
signal a w eak en in g o f its u nderw riting
practices, or m ay suggest a n eed to revise the
loan p olicy.
D efin ition s
For the p u rp oses o f these G uidelines:
Construction loan m eans an exten sion o f
credit for the purpose o f erecting or
rehabilitating b u ild in gs or other structures,
in clu d in g any infrastructure n ecessary for
develop m en t.
Extension of credit or loan means:
(1) T h e total am ount o f any loan, lin e o f
credit, or other legally binding len d in g
com m itm en t w ith respect to real property;
and
(2) T he total am ount, based on the am ount
o f con sid eration paid, o f any loan, lin e o f
credit, or other legally bin din g len d in g
com m itm ent acquired by a lender by
purchase, assignm ent, or otherw ise.
Improved property loan m eans an
exten sion o f credit secured by on e o f the
follow in g types o f real property:
(1) Farm land, ranchland or tim ber!and
com m itted to o n goin g m anagem ent and
agricultural production;
(2 ) 1- to 4-fam ily resid en tial property that
is n ot ow ner-occupied;
(3) R esidential property con tain in g five or
m ore in d iv id u a l d w e llin g units;
(4) C om p leted com m ercial property; or
(5 ) O ther incom e-p rod ucin g property that
h as b een co m p leted an<) is availab le for
o ccu p a n cy and u se, ex cep t incom ep rod u cin g ow n er-occup ied 1- to 4-fom ily
resid en tial property.
Land development loan m ean s an
ex ten sio n o f credit for th e p u rp ose o f
im provin g u n im p roved real property prior to
th e erection o f structures. T h e im provem en t
o f u n im p roved real property m ay in clu d e the
layin g or p lacem en t o f sew ers, w ater p ip es,
u tility cables, streets, and other infrastructure
n ecessary for future d e v e lo p m e n t
Loan origination m ean s the tim e o f
in cep tio n o f the ob ligation to exten d credit
(i.e., w h en th e last even t or prerequisite,
con trollable b y the lender, occu rs cau sin g the
len d er to b ecom e legally b ou n d to fund an
ex ten sio n o f credit).
Loan-to-value or loan-to-value ratio m ean s
th e p ercentage or ratio that is derived at the
tim e o f loan origination b y d iv id in g an
ex ten sio n o f cred it b y th e total v alu e o f the
property(ies) secu rin g or b ein g im proved by
the ex ten sio n o f cred it p lu s th e am ount o f
an y read ily m arketable collateral an d other
accep tab le collateral that secu res the
ex ten sio n o f credit. T h e total am ount o f a ll
sen ior lie n s on or in terests in su ch
property(ies) sh o u ld b e in clu d ed in
d eterm in in g the loan-to-value ratio. W hen
m ortgage insu ran ce or collateral is u sed in
the calcu lation o f the loan-to-value ratio, and
su ch credit en h an cem en t is later released or
replaced, the loan-to-value ratio sh o u ld be
recalculated.
Other acceptable collateral m ean s an y
collateral in w h ic h the len d er h as a perfected
secu rity interest, that h as a quantifiable
valu e, an d is accep ted by th e len d er in
accordance w ith safe and sou n d len d in g
practices. O ther accep tab le collateral sh o u ld
be appropriately d isco u n ted by the len d er
co n sisten t w ith the len d er’s u su al practices
for m aking loan s secu red by su ch collateral.
O ther accep tab le collateral in clu d es, am ong
other item s, u n con d ition al irrevocable
standby letters o f credit for the b en efit o f the
lender.
Owner-occupied, w h en u sed in
con jun ction w ith th e term 1- to 4-family
residential property m ean s that th e ow n er o f
the u n d erlyin g real property o ccu p ies at least
o n e u n it o f the real property as a prin cip al
resid en ce o f the ow ner.
Readily marketable collateral m ean s
insured d ep osits, finan cial instrum ents, and
b u llion in w h ic h th e len d er has a perfected
interest. F in an cial in stru m ents and b u llio n
m ust be salable u n d er ordinary
circu m stan ces w ith reasonable p rom ptness at
a fair m arket v a lu e determ ined b y quotations
based on actual transactions, on an au ction
or sim ilarly available d aily b id and ask p rice
market. R eadily m arketable collateral sh o u ld
be appropriately d isco u n ted by th e len d er
co n sisten t w ith the len d er’s u su al practices
for m aking loan s secu red by su ch collateral.
Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 6 2 8 9 9
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, which 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.
12 CFR Part 208
Accounting, Agriculture, Banks,
banking, Confidential business
information, Currency, Federal Reserve
System, Real estate lending standards,
Reporting and recordkeeping
requirements, Securities.
12 CFR Part 365
Banks, banking, Credit, Mortgages,
Real estate appraisals. Real estate
lending standards, Savings associations.
12 CFR Part 545
Accounting, Consumer protection.
Credit, Electronic funds transfers,
Investments, Manufactured homes,
Mortgages, Reporting and recordkeeping
requirements, Savings associations.
12 CFR Part 563
Accounting, Advertising, Crime,
Currency, Flood insurance, Investments,
Reporting and recordkeeping
requirements, Savings associations,
Securities, Surety bonds.
Authority: 12 U.S.C 1 e ts e q ., 93a, 371,
1701j-3,1828(o), and 3331 e ts e q .
2.
A new Subpart D—Real Estate
Lending Standards is added to part 34
to read as follows:
Subpart D— Real Estate Landing Standards
Sec.
34.61 Purpose and scope.
34.62 Real estate lending standards.
Appendix A to Subpart D of Part 34—
Interagency Guidelines for Real Estate
Lending Policies
Subpart D— Real Estate Lending
Standards
$34.61
Purpose and scope.
Appendix A to Subpart D of Part 34—
Interagency Guldelinea for Real Estate
Lending
II. Federal Reserve System
12 CFR Part 208
For the reasons set out in the
preamble, the Board of Governors
amends 12 CFR part 208 as set forth
below:
PART 208— MEMBERSHIP OF STATE
BANKING INSTITUTIONS IN THE
FEDERAL RESERVE SYSTEM
This subpart, issued pursuant to
section 304 of the Federal Deposit
1. The authority citation for 12 CFR
Insurance Corporation Improvement Act
part 208 is revised to read as follows:
of 1991,12 U.S.C. 1828(o), prescribes
standards for real estate lending to be
Authority: S ecs. 9 , 11(a ), 1 1(c), 1 9 , 2 1, 2 5
and 25(a ) o f the Federal Reserve Act, as
used by national banks in adopting
am en d ed (1 2 U .S .C 3 2 1 - 3 3 8 , 248(a ), 2 4 8 (c ),
internal real estate lending policies.
$ 34.62
Real estate lending standards.
(a) Each national bank 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 purpose of
financing permanent improvements to
real estate.
(b)
(1) Real estate lending policies
adopted pursuant to this section must:
(1) Be consistent with 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
bank’s board of directors at least
annually.
(2) The lending policies must
establish:
(i) Loan portfolio diversification
standards;
(ii) Prudent underwriting standards,
including loan-to-value limits, that are
clear and measurable;
(iii) Loan administration procedures
for the bank’s real estate portfolio; and
(iv) Documentation, approval, and
reporting requirements to monitor
compliance ,with 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
its lending area to ensure that its real
12 CFR Part 34
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 isPolicies established by the Federal bank
and thrift supervisory agencies.
revised to read as follows:
3.
Appendix A is added to subpart D
of part 34 to read as set forth at the end
of the preamble.
4 6 1 , 4 8 1 - 4 8 6 , 6 0 1 , and 6 1 1 , respectively);
secs. 4 , 13(j), 1 8 (o ), an d 3 8 o f the Federal
D ep osit Insurance Act. as am en ded (1 2
U .S .C 1 8 1 4 , 1 8 2 3 (j), 1 8 2 8 (o ), and 1 8 3 1 o ,
resp ectively); sec. 7(a) o f th e International
B anking A ct o f 1 9 7 8 (1 2 U .S .C 3 105); secs.
9 0 7 - 9 1 0 o f the International L ending
S u p ervision A ct o f 1 9 8 3 (1 2 U .S .C 3 9 0 6 3 9 0 9 h secs. 2 , 12(b ), 12(g), 1 2 (i), 15B (c)(5),
1 7 , 17A , and 2 3 o f the S ecu rities E xchange
A ct o f 1 9 3 4 (1 5 U .S .C 78b , 7 81(b ), 781(g ),
7 8 1 (i). 7 8 o —
4(c)(5), 78q , 7 8 q - l , and 7 8 w ,
resp ectively); sec. 5 1 5 5 o f the R evised
Statutes (1 2 U .S .C 3 6 ) as am en ded b y the
M cFadden A ct o f 1 9 2 7 ; and secs. 1 1 0 1 - 1 1 2 2
o f the F in an cial In stitu tion s Reform,
R ecovery, and E nforcem ent A ct o f 1 9 8 9 (1 2
U .S .C 3 3 1 0 and 3 3 3 1 - 3 3 5 1 ) .
2. A new Subpart C, comprising
§§ 208.51 through 208.52, is added to
p a rt 208 t o r e a d a s f o llo w s :
Subpart C— Real Estate Landing Standards
Sec.
2 0 8 .5 1 P urpose and scope.
2 0 8 .5 2 Real estate len d in g standards.
Subpart C— Real Estate Lending
Standards
$ 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.
1 208.52
Real estate landing 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
6 2 9 0 0 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
$ 365.1 Purpose and scope.
purpose of financing permanent
This part, issued pursuant to section
improvements to real estate.
(b)
(1) Real estate lending policies 304 of the Federal Deposit Insurance
Corporation Improvement Act of 1991,
adopted pursuant to this section must:
12 U.S.C. 1828(o), prescribes standards
(1) Be consistent with safe and sound
for real estate lending to be used by
banking practices;
insured state nonmember banks
(ii) Be appropriate to the size of the
(including state-licensed insured
institution and the nature and scope of
branches of foreign banks) in adopting
its operations; and
(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 nonmember
(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 underwriting standards,
in real estate, or that are made for the
including loan-to-value limits, that are
purpose of financing permanent
clear and measurable;
improvements to real estate.
(iii) Loan administration procedures
( d)(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
(i) Loan portfolio diversification
adopted pursuant to this section should standards;
reflect Consideration of the Interagency
(ii) Prudent underwriting standards,
Guidelines for Real Estate Lending
including loan-to-value limits, that are
Policies established by the Federal bank clear and measurable;
and thrift supervisory agencies.
(iii) Loan administration procedures
3.
A new Appendix C is added to partfor the bank’s real estate portfolio; and
(iv) Documentation, approval, and
208 to read as set forth at the end of the
reporting requirements to monitor
preamble.
compliance with the bank’s real estate
Appendix C to Pert 208— Interagency
lending policies.
Guidelines for Reel 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
III. 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 m 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
Sea
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 amends 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, 1463,1464,
1828.
2. Section 545.32 is amended by
removing paragraph (b)(2), redesignating
paragraph (b)(1) as paragraph (b)(2);
removing the phrase ’’Subject to the
limitations of $ 545.33(e)” where it
appears in paragraph (b)(3) and adding
in lieu thereof the phrase “Subject to the
limitations 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)
General—(1) Real estate lending
standards. Federal savings associations
shall establish prudent real estate
lending standards, including
requirements on disbursements,
maximum loan terms, amortization, and
repayment.
* * * * *
(d)
Loan-to-value ratios. (1) Loan-tovalue ratios shall be determined in
accordance with §§ 563.100 and 563.101
of this chapter.
(2)
For private mortgage insurance
requirements in accordance with
§§ 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 amended 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 newly 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
requirements of this paragraph (d),”
t
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Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations 62901
where it appears in the third sentence
of the newly 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)(i) 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 "permissible 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 "permissible under §§ 563.100 and
563.101 of this chapter”, respectively;
h. By removing the phrase "and shall
be repayable within eighteen months"
where it appears in newly designated
paragraph (e);
i. Ana 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 amended by
removing paragraphs (a) through (c), by
redesignating paragraph (d) as
paragraph (b), and by adding a new
paragraph (a) to read as follows:
$545.40
[Amended]
7. Section 545.40 is amended by
removing the phrase "in this part"
where 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:
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 which the savings
associations exercise control, in
adopting internal real estate lending
policies.
§563.101
Real aetata landing standards.
(a)
Each savings association shall
§ 545.42 Home Improvement loans.
adopt and maintain written policies that
establish appropriate limits and
For any home improvement loan,
with or without security, made pursuant standards for extensions of credit that
are secured by liens on or interests in
to section 5(c)(l)(J) of the Act, Federal
real estate, or that are made for the
savings associations shall establish
purpose of financing permanent
prudent lending standards, including
improvements to real estate.
requirements on disbursements,
( d)(1) Real estate lending policies
maximum loan terms, amortization and
adopted pursuant to this section must:
repayment. No loan contract may
(1) Be consistent with safe and sound
provide for the deferral and
capitalization of interest on a loan made banking practices;
(ii)
Be appropriate to the size of the
under this section.
institution and the nature and scope of
§545.45 [Amended]
its operations; and
(iil) Be reviewed and approved by the
9. Section 545.45 is amended by
removing the phrase "authorized under savings association’s board of directors
§ 545.33(c) and (e) of this part” where it at least annually.
(2) The lending policies must
appears in paragraph (d)(2)(ii) and
establish:
adding in lieu thereof the phrase
(i) Loan portfolio diversification
"authorized under § 545.33(a) and (c) of
standards;
this part"; and by removing the phrase
(ii) Prudent underwriting standards,
"may be treated as a home loan under
including loan-to-value limits, that are
§ 545.33" where it appears in paragraph clear and measurable;
(d)(3)(i) and adding in lieu thereof the
(iii) Loan administration procedures
§ 545.35 Other real estate loans.
phrase "may be treated as a home loan
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for the savings association's real estate
under §§ 563.100 and 563.101 of this
portfolio; and
(a)
A Federal association shall apply chapter”.
(iv) Documentation, approval, and
standards as established in accordance
reporting requirements to monitor
SUBCHAPTER D— REGULATIONS
with § 545.32(b)(1) of this pau.
APPLICABLE T O A LL SAVINGS
compliance with the savings
* * * * *
ASSOCIATIONS
association’s real estate lending policies.
5. Section 545.36 is amended by
(c) Each savings association must
revising paragraphs (a) and (b) to read
PART 563— OPERATIONS
monitor conditions in the real estate
as follows:
10. The authority citation for part 563 market in its lending area to ensure that
i 545.36 Loans to acquire or improve real
its real estate lending policies continue
continues to read as follows:
estate.
to be appropriate for current market
Authority: 12 U.S.C. 1462,1462a, 1463,
* * * * *
conditions.
1464,1467a, 1468,1817,1828, 3806; 42
(a) Such loans shall adhere to the
(d) The real estate lending policies
U.S.C 4106; Pub. L. 102-242, sec. 306,105
standards adopted under §§ 563.100 and Stat. 2236, 2355 (1991).
adopted pursuant to this section should
563.101 of this chapter.
reflect consideration of the Interagency
(b) Such loans shall be repayable in
§563.97 [Amended]
Guidelines for Real Estate Lending
accordance with § 545.32(b)(1) of this
Policies established by the Federal bank
11. Section 563.97 is amended by
part.
removing the phrase "may do so only if and thrift supervisory agencies.
* * * * *
13.
Appendix A is added to subpart
such loans comply with § 545.38(a) or
D of part 563 to read as set forth at the
6. Section 545.37 is amended by
§ 545.32(d)(2) of this chapter" where it
end of the preamble.
removing paragraphs (c) and (d) and
appears in paragraph (a) and adding in
revising paragraph (b) to read as follows: lieu thereof the phrase "may do so only
if such loans comply with § 545.38(a) or Appendix A to Subpart D of Part 563—
f 545.37 Combination loans.
§§ 563.100 and 563.101 of this chapter". Interagency Guidelines for Real Estate
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Lending
12. New §§ 563.100 and 563.101 are
(b)
The standards applicable in
added to subpart D of part 563 to read
Dated: November 22,1992.
§ 545.32(b)(1) shall apply with respect
as follows:
By the Office of the Comptroller of the
to a combination of loans to finance
Currency.
development of real estate and loans on § 563.100 Real estate lending standards;
Stephen R. Steinbrink,
purpose and scope.
building lots and sites and/or
Acting Comptroller of the Currency.
construction loans, whether or not
This section, and § 563.101 of this
development has been completed.
subpart, issued pursuant to section 304
Dated: December 2,1992.
6 2 9 0 2 Federal Register / Vol. 57, No. 252 / Thursday, December 31, 1992 / Rules and Regulations
By the O ffice o f Thrift Supervision.
By the Board o f G overnors o f the Federal
Reserve System .
Timothy Ryan,
William W . Wiles,
D ire c to r.
S e c re ta ry o f th e B o a r d o f G o v e rn o rs o f the
[FR Doc. 9 2 - 3 1 4 8 1 F iled 1 2 - 3 0 - 9 2 ; 8 :45 am]
F e d e r a l R eserve S ys te m .
BIUJNO CODE 4*10-33-41, <210-01-44, *714-01-M ,
<720-01-a -
Dated: O ctober 2 7 , 1 9 9 2 .
By T h e Federal D eposit Insurance
Corporation.
Hoyle L. Robinson,
E x e c u tiv e S e cre ta ry.
Dated: N ovem ber 5 , 1 9 9 2 .
@FedFRASER