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1 1 (November 6, 2017)

handle is hein.congrec/cbo3819 and id is 1 raw text is: CONGRESSIONAL BUDGET OFFICE COST ESTIMATE November 6, 2017 H.R. 2148 Clarifying Commercial Real Estate Loans As ordered reported by the House Committee on Financial Services on October 12, 2017 H.R. 2148 would revise the current requirement that banks hold more capital for high- volatility commercial real estate (HVCRE) loans. HVCRE loans are a subset of acquisition, development, and construction (ADC) loans, which banks make to borrowers who wish to purchase and improve real property. Under the bill, regulators could permit banks to hold between 8 percent and 10.4 percent of capital for certain new HVCRE loans instead of the 10.4 percent proposed by bank regulators. The effect of H.R. 2148 would be to exempt loans from the increased capital requirements if borrowers contribute resources, land, or property that is worth at least 15 percent of the appraised value of the financed property. Those loans are called contributed capital loans. The bill would apply only to new HVCRE loans. Banks do not currently report the value of contributed capital loans to regulators, so the value of new loans subject to the exemption is uncertain. In addition, depending on future regulations, banks might change the way they structure those loans, or, if the capital requirements were perceived as too onerous, banks might stop making such loans altogether. On the basis of publicly available data from bank balance sheets, CBO estimates that banks currently hold about $315 billion in ADC loans, which amounts to about 2 percent of their total assets. In CBO's baseline projections, bank assets grow by roughly 5 percent each year over the 2018-2027 period. CBO expects that the value of ADC loans will grow in line with other assets and thus ADC loans would constitute roughly 2 percent of those additional assets. Banks now must hold 8 percent of the value of ADC loans that are not determined to be HVCRE loans in capital reserves. Under regulations proposed in September, banks would need to increase the reserve amount to 10.4 percent for loans that were subject to the additional-capital requirement.1 CBO estimates that about one-quarter of ADC loans are exempt from the additional-capital requirement because they finance construction of properties that include between one and four family residences. Because it is unknown whether that new rule will become final under current law, CBO has assigned a 1. Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency, Agencies Propose Simplifying Regulatory Capital Rules, NR 2017-111 (press release, September 27, 2017), hi :/ i v/ T6.

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