Clarifying Commercial Real Estate Loans

Summary: Clarifying Commercial Real Estate Loans This bill amends the Federal Deposit Insurance Act to specify that a federal banking agency may not subject a depository institution to higher capital standards with respect to a high-volatility commercial real-estate (HVCRE) exposure unless the exposure is an HVCRE acquisition, development, or construction (ADC) loan. An HVCRE ADC loan is a&nbsp;one that: (1) is&nbsp;secured by land or improved real property; (2) has the purpose of providing financing to acquire, develop, or improve the real property such that the property becomes income-producing; and (3) is dependent upon future income or sales proceeds from, or refinancing of, the real property for the repayment of the loan. An HVCRE ADC loan does not include financing for a&nbsp;one- to four-family residential property, agricultural land, real property that would qualify as an investment in community development,&nbsp;existing income-producing real property secured by a mortgage, or certain commercial real-property projects.&nbsp;Furthermore, such a loan does not include any loan made prior to January 1, 2015. A depository institution may reclassify a loan as a non-HVCRE ADC loan if the depository institution is satisfied that: (1) the acquisition, development, or&nbsp;improvement of real property being financed by the loan is complete; and (2) the cash flow being generated by the real property is sufficient to support the debt service and expenses of the real property. 

SECTION 1. SHORT TITLE.

    This Act may be cited as ``Clarifying Commercial Real Estate 
Loans''.

SEC. 2. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISITION, DEVELOPMENT, OR 
              CONSTRUCTION LOANS.

    The Federal Deposit Insurance Act is amended by adding at the end 
the following new section:

``SEC. 51. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISITION, DEVELOPMENT, 
              OR CONSTRUCTION LOANS.

    ``(a) In General.--The appropriate Federal banking agencies may 
only subject a depository institution to higher capital standards with 
respect to a high volatility commercial real estate (HVCRE) exposure 
(as such term is defined under section 324.2 of title 12, Code of 
Federal Regulations, as of October 11, 2017, or if a successor 
regulation is in effect as of the date of the enactment of this 
section, such term or any successor term contained in such successor 
regulation) if such exposure is an HVCRE ADC loan.
    ``(b) HVCRE ADC Loan Defined.--For purposes of this section and 
with respect to a depository institution, the term `HVCRE ADC loan'--
            ``(1) means a credit facility secured by land or improved 
        real property that, prior to being reclassified by the 
        depository institution as a Non-HVCRE ADC loan pursuant to 
        subsection (d)--
                    ``(A) primarily finances, has financed, or 
                refinances the acquisition, development, or 
                construction of real property;
                    ``(B) has the purpose of providing financing to 
                acquire, develop, or improve such real property into 
                income-producing real property; and
                    ``(C) is dependent upon future income or sales 
                proceeds from, or refinancing of, such real property 
                for the repayment of such credit facility;
            ``(2) does not include a credit facility financing--
                    ``(A) the acquisition, development, or construction 
                of properties that are--
                            ``(i) one- to four-family residential 
                        properties;
                            ``(ii) real property that would qualify as 
                        an investment in community development; or
                            ``(iii) agricultural land;
                    ``(B) the acquisition or refinance of existing 
                income-producing real property secured by a mortgage on 
                such property, if the cash flow being generated by the 
                real property is sufficient to support the debt service 
                and expenses of the real property, as determined by the 
                depository institution, in accordance with the 
                institution's applicable loan underwriting criteria for 
                permanent financings;
                    ``(C) improvements to existing income-producing 
                improved real property secured by a mortgage on such 
                property, if the cash flow being generated by the real 
                property is sufficient to support the debt service and 
                expenses of the real property, as determined by the 
                depository institution, in accordance with the 
                institution's applicable loan underwriting criteria for 
                permanent financings; or
                    ``(D) commercial real property projects in which--
                            ``(i) the loan-to-value ratio is less than 
                        or equal to the applicable maximum supervisory 
                        loan-to-value ratio as determined by the 
                        appropriate Federal banking agency; and
                            ``(ii) the borrower has contributed capital 
                        of at least 15 percent of the real property's 
                        appraised, `as completed' value to the project 
                        in the form of--
                                    ``(I) cash;
                                    ``(II) unencumbered readily 
                                marketable assets;
                                    ``(III) paid development expenses 
                                out-of-pocket; or
                                    ``(IV) contributed real property or 
                                improvements; and
                            ``(iii) the borrower contributed the 
                        minimum amount of capital described under 
                        clause (ii) before the depository institution 
                        advances funds under the credit facility, and 
                        such minimum amount of capital contributed by 
                        the borrower is contractually required to 
                        remain in the project until the credit facility 
                        has been reclassified by the depository 
                        institution as a Non-HVCRE ADC loan under 
                        subsection (d);
            ``(3) does not include any loan made prior to January 1, 
        2015; and
            ``(4) does not include a credit facility reclassified as a 
        Non-HVCRE ADC loan under subsection (d).
    ``(c) Value of Contributed Real Property.--For purposes of this 
section, the value of any real property contributed by a borrower as a 
capital contribution shall be the appraised value of the property as 
determined under standards prescribed pursuant to section 1110 of the 
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 
(12 U.S.C. 3339), in connection with the extension of the credit 
facility or loan to such borrower.
    ``(d) Reclassification as a Non-HVCRE ADC Loan.--For purposes of 
this section and with respect to a credit facility and a depository 
institution, upon--
            ``(1) the completion of the development or construction of 
        the real property being financed by the credit facility; and
            ``(2) cash flow being generated by the real property being 
        sufficient to support the debt service and expenses of the real 
        property,
in either case to the satisfaction of the depository institution, in 
accordance with the institution's applicable loan underwriting criteria 
for permanent financings, the credit facility may be reclassified by 
the depository institution as a Non-HVCRE ADC loan.''.