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Financial Services Law Insights and Observations

FDIC finalizes rule amending real estate lending

Agency Rule-Making & Guidance FDIC Federal Register LTV Ratio Community Banks Real Estate Bank Regulatory

Agency Rule-Making & Guidance

On October 22, the FDIC adopted a final rule amending the Interagency Guidelines for Real Estate Lending Policies to include consideration of the capital framework established in the community bank leverage ratio (CBLR) rule into the method of calculating the ratio of loans in excess of the supervisory loan-to-value limits (LTV limits), which applies to all FDIC-supervised financial institutions. As previously covered by InfoBytes, the FDIC issued the proposed rule to amend the Interagency Guidelines for Real Estate Lending Policies in June by proposing to establish supervisory LTV criteria for certain real estate lending transaction types and allowing exceptions to the supervisory LTV limits. Among other things, the final rule: (i) “revises the Appendix so that all FDIC-supervised institutions calculate the ratio of loans in excess of the supervisory LTV limits using tier 1 capital plus the appropriate allowance for credit losses in the denominator, regardless of an institution’s CBLR election status”; and (ii) “provides a consistent approach for calculating the ratio of loans in excess of the supervisory LTV limits at all FDIC-supervised institutions,” and “would approximate the historical methodology . . . for calculating the ratio of loans in excess of the supervisory LTV limits.” The final rule is effective 30 days after publication in the Federal Register.

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