II 

115TH CONGRESS 

2D SESSION S. 2405 

To amend the Federal Deposit Insurance Act to clarify capital requirements 

for certain acquisition, development, or construction loans. 

IN THE SENATE OF THE UNITED STATES 

FEBRUARY 8, 2018 

Mr. COTTON (for himself and Mr. JONES) introduced the following bill; which 

was read twice and referred to the Committee on Banking, Housing, and 

Urban Affairs 

A BILL 

To amend the Federal Deposit Insurance Act to clarify capital requirements for certain acquisition, development, 

or construction loans. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as ‘‘Clarifying Commercial 

5 Real Estate Loans’’. 


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1 SEC. 2. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISI2 TION, DEVELOPMENT, OR CONSTRUCTION 

3 LOANS. 

4 The Federal Deposit Insurance Act is amended by 

5 adding at the end the following new section: 

6 ‘‘SEC. 51. CAPITAL REQUIREMENTS FOR CERTAIN ACQUISI7 TION, DEVELOPMENT, OR CONSTRUCTION 

8 LOANS. 

9 ‘‘(a) IN GENERAL.—The appropriate Federal bank10 ing agencies may only subject a depository institution to 

11 higher capital standards with respect to a high volatility 

12 commercial real estate (HVCRE) exposure (as such term 

13 is defined under section 324.2 of title 12, Code of Federal 

14 Regulations, as of October 11, 2017, or if a successor reg15 ulation is in effect as of the date of the enactment of this 

16 section, such term or any successor term contained in such 

17 successor regulation) if such exposure is an HVCRE ADC 

18 loan. 

19 ‘‘(b) HVCRE ADC LOAN DEFINED.—For purposes 

20 of this section and with respect to a depository institution, 

21 the term ‘HVCRE ADC loan’— 

22 ‘‘(1) means a credit facility secured by land or 

23 improved real property that, prior to being reclassi24 fied by the depository institution as a Non-HVCRE 

25 ADC loan pursuant to subsection (d)— 


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1 ‘‘(A) primarily finances, has financed, or 

2 refinances the acquisition, development, or con3 struction of real property; 

4 ‘‘(B) has the purpose of providing financ5 ing to acquire, develop, or improve such real 

6 property into income-producing real property; 

7 and 

8 ‘‘(C) is dependent upon future income or 

9 sales proceeds from, or refinancing of, such real 

10 property for the repayment of such credit facil11 ity; 

12 ‘‘(2) does not include a credit facility financ13 ing— 

14 ‘‘(A) the acquisition, development, or con15 struction of properties that are— 

16 ‘‘(i) one- to four-family residential 

17 properties; 

18 ‘‘(ii) real property that would qualify 

19 as an investment in community develop20 ment; or 

21 ‘‘(iii) agricultural land; 

22 ‘‘(B) the acquisition or refinance of exist23 ing income-producing real property secured by 

24 a mortgage on such property, if the cash flow 

25 being generated by the real property is suffiVerDate Sep 11 2014 03:24 Feb 10, 2018 Jkt 079200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S2405.IS S2405

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1 cient to support the debt service and expenses 

2 of the real property, as determined by the de3 pository institution, in accordance with the in4 stitution’s applicable loan underwriting criteria 

5 for permanent financings; 

6 ‘‘(C) improvements to existing income-pro7 ducing improved real property secured by a 

8 mortgage on such property, if the cash flow 

9 being generated by the real property is suffi10 cient to support the debt service and expenses 

11 of the real property, as determined by the de12 pository institution, in accordance with the in13 stitution’s applicable loan underwriting criteria 

14 for permanent financings; or 

15 ‘‘(D) commercial real property projects in 

16 which— 

17 ‘‘(i) the loan-to-value ratio is less than 

18 or equal to the applicable maximum super19 visory loan-to-value ratio as determined by 

20 the appropriate Federal banking agency; 

21 and 

22 ‘‘(ii) the borrower has contributed 

23 capital of at least 15 percent of the real 

24 property’s appraised, ‘as completed’ value 

25 to the project in the form of— 


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1 ‘‘(I) cash; 

2 ‘‘(II) unencumbered readily mar3 ketable assets; 

4 ‘‘(III) paid development expenses 

5 out-of-pocket; or 

6 ‘‘(IV) contributed real property 

7 or improvements; and 

8 ‘‘(iii) the borrower contributed the 

9 minimum amount of capital described 

10 under clause (ii) before the depository in11 stitution advances funds under the credit 

12 facility, and such minimum amount of cap13 ital contributed by the borrower is contrac14 tually required to remain in the project 

15 until the credit facility has been reclassi16 fied by the depository institution as a Non17 HVCRE ADC loan under subsection (d); 

18 ‘‘(3) does not include any loan made prior to 

19 January 1, 2015; and 

20 ‘‘(4) does not include a credit facility reclassi21 fied as a Non-HVCRE ADC loan under subsection 

22 (d). 

23 ‘‘(c) VALUE OF CONTRIBUTED REAL PROPERTY.— 

24 For purposes of this section, the value of any real property 

25 contributed by a borrower as a capital contribution shall 


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1 be the appraised value of the property as determined 

2 under standards prescribed pursuant to section 1110 of 

3 the Financial Institutions Reform, Recovery, and Enforce4 ment Act of 1989 (12 U.S.C. 3339), in connection with 

5 the extension of the credit facility or loan to such bor6 rower. 

7 ‘‘(d) RECLASSIFICATION AS A NON-HVCRE ADC 

8 LOAN.—For purposes of this section and with respect to 

9 a credit facility and a depository institution, upon— 

10 ‘‘(1) the completion of the development or con11 struction of the real property being financed by the 

12 credit facility; and 

13 ‘‘(2) cash flow being generated by the real prop14 erty being sufficient to support the debt service and 

15 expenses of the real property, 

16 in either case to the satisfaction of the depository institu17 tion, in accordance with the institution’s applicable loan 

18 underwriting criteria for permanent financings, the credit 

19 facility may be reclassified by the depository institution 

20 as a Non-HVCRE ADC loan.’’. 

Æ 


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