Compliance Alliance Q&A 10-19-17
Is HVCRE collateral driven or purpose drive? For example, if the bank does an equity out loan to purchase land, and the land being purchased will not be the bank’s collateral, would this loan still qualify as HVCRE, since the purpose of the loan is to purchase the land?
First, to qualify for an HVCRE, it would be purpose driven to determine whether or not ADC applied. HVCRE technically covers the "acquisition, development OR construction" (ADC) of commercial real estate, so it's possible that purchasing land might still fall under the HVCRE risk weighting. However, if the loan is solely for the purpose of developing agricultural land, then it would also be exempt, per the regulation.
The complete definition of HVCRE can be found here: https://www.fdic.gov/regulations/laws/rules/2000-4350.html.
However, the exemptions are what would bring collateral in to the equation. HVCRE exceptions include:
- ADC (acquisition, development, or construction) loans for 1-4 family residential properties, including loans secured by land for developing or constructing 1-4 family residential properties, and loans to finance the acquisition of lots zoned for 1-4 family residential properties;
- ADC loans for real property that qualifies as community development investments; and
- ADC loans for land used for agricultural purposes.
CA does offer a High Volatility Commercial Real Estate (HVCRE) Summary of the most frequently asked questions in effect of having HVCRE in bank portfolios.
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