Add HVCRE reform to the list of things that have bi-partisan support (currently on the list: flag pins and banning the use of Twitter in the White House). On Tuesday, the House passed (with bi-partisan support…which should bolster its chances of passing in the Senate) H.R.2148 – Clarifying Commercial Real Estate Loans, otherwise known as the Pittenger Bill. As we covered in June, the Pittenger Bill aims to address the main shortcomings of the Basel III High Volatility Commercial Real Estate (HVCRE) regulations that affect acquisition, development or construction (ADC) loans by, among other things:
- offering a grandfather exemption for loans made prior to 2015;
- exempting acquisition and/or refinancing loans for properties with cash flow sufficient to support debt service and property expenses;
- removing the prohibition of cash distributions as long as borrower’s 15% equity stays in the deal; and
- providing the ability to convert (without having to make a new loan) from a HVCRE loan to a non-HVCRE loan prior to the end of the term of the loan.
Since our last check-in with H.R. 2148, Congresswoman Maloney proposed an amendment that streamlined (although streamline and legislation seem like oxymorons) the HVCRE bill with the proposed HVADC framework. According to the Congressional Budget Office (CBO), enacting the Pittenger Bill would not significantly increase spending or deficits. In other words, the Pittenger Bill has got what it takes!
Stay tuned as we track the HVCRE reform as it progresses through the Senate. The Senate is notoriously slow to move and with legislators focused on tax reform, it’s unclear whether any “multi-tasking” will extend to include passage of the HVCRE reform. And for those of you asking “what about HVADC?!”, the proposed rule is open for comments until December 26, 2017 and will be subject to vote in the Basel Committee for Banking Supervision in the coming weeks. Meaning, Congress is in a race against the regulators to see who can get their reform in place first. If this all gives you agita, reach out to the Crunched Credit team – we’re happy to discuss.