1. Short title
This Act may be cited as the “Home Construction Lending Regulatory Improvement Act of 2013”.
Home Construction Lending Regulatory Improvement Act of 2013
A BILL
To enable Federal and State chartered banks and thrifts to meet the credit needs of the Nation’s home builders, and to provide liquidity and ensure stable credit for meeting the Nation’s need for new homes.
2. Purpose
It is the purpose of this Act to—
immediately provide authority and guidance that Federal and State bank regulators can use to ensure that Federal and State chartered banks and thrifts that provide financing to America’s home builders are permitted to make loans, provide ongoing liquidity, and ensure stable financing to such home builders; and
enable Federal and State chartered banks and thrifts to provide initial and ongoing credit to America’s home builders to aid in restoring liquidity to the home building sector and to restore vitality to the United States residential housing market.
3. Coordinated rulemaking
Initiation of proceedings— Not later than 90 days after the enactment of this Act, the appropriate Federal banking agencies shall initiate a coordinated rulemaking with respect to financial institutions under their respective jurisdictions that make real estate loans to home builders. Such rulemaking shall provide for the following:
Elimination of the 100 percent of bank capital measurement—
Loan origination— If any qualified financial institution is holding real estate loans in its lending portfolio that in the aggregate represent 100 percent or more of its total capital, the appropriate Federal banking agency shall not prohibit any such institution from continuing to make such loans to home builders.
Lending decisions— The appropriate Federal banking agency shall not prevent a qualified financial institution from making a real estate loan to a home builder that has a viable project.
Qualified financial institution defined— For purposes of this paragraph, the term qualified financial institution means a financial institution that received, in the most recent examination of the institution, a CAMEL composite rating of 1, 2, or 3 under the Uniform Financial Institutions Rating System.
Realistic market based appraisals—
Valuation standard— The appropriate Federal banking agency shall require that entities used by financial institutions to assess the value of collateral, with respect to a real estate loan, associated with any viable project in such institution’s lending portfolio utilize an as completed valuation to make such an assessment.
Arms length transactions— The appropriate Federal banking agency shall require that entities used by financial institutions to assess or review underwriting standards and collateral values for real estate loans made by such institutions after the date of the enactment of this Act use comparable sales involving arms length transactions to make such an assessment or review.
Prohibition on compelling lenders to call or curtail loans in good standing—
Home builders in good standing— The appropriate Federal banking agency shall not compel a financial institution to call or curtail a real estate loan of a home builder that is in good standing.
Maximum market valuation—
In general— The appropriate Federal banking agency shall, in the case that a home builder is in good standing on a real estate loan but the home builder’s collateral, with respect to that loan, has decreased in value based on an as completed valuation, permit a financial institution to work with such home builder to realize the maximum current market valuation of such collateral using workout methods or other appropriate means.
Period of workout methods— Workout methods may be utilized up to a 24-month period following the issuance of final regulations under subsection (c). In no case shall any real estate loan be required to be charged off until the financial institution holding such loan has worked in good faith to exhaust all workout methods or other appropriate means.
Reclassification of loans— The appropriate Federal banking agency shall not require a financial institution to reclassify any real estate loan in this paragraph on such institution’s balance sheet, unless there is a significant reason under Financial Accounting Standards Board Accounting Standards Codification 310–10–35–55 or 310–10–35–57.
Waiting period— If the enactment of paragraphs 2 or 3 of this subsection helps to improve a financial institution’s CAMEL composite rating under the Uniform Financial Institutions Rating System from a 4 or 5 to a 1, 2, or 3 in such institution’s next examination that begins after the date that final regulations are issued pursuant to subsection (c), such institution’s improved rating shall take effect no earlier than 24 months after such rating was received.
Coordination, consistency, and comparability— Each of the agencies with authorities referred to in subsection (a) shall consult and coordinate with the other such agencies and authorities for the purpose of assuring, to the extent possible, that the regulations by each such agency and authority are consistent and comparable with those prescribed by the other such agencies and authorities.
Deadline— Not later than 6 months after the enactment of this Act, each of the agencies with authorities referred to in subsection (a) shall issue final regulations to implement rules issued under this Act.
Agency authority— The rules issued under this Act shall be enforced by the appropriate Federal banking agencies with respect to financial institutions under their respective jurisdictions.
Effect on State law— The rules issued under this Act shall not supercede the law of any State except to the extent that such law is inconsistent with such rule, and then only to the extent of the inconsistency.
4. Definitions
In this Act:
Appropriate Federal banking agency— The term appropriate Federal banking agency has the same meaning as is given such term in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).
Arms length transaction—
In general— The term arms length transaction means a negotiated real estate transaction between a buyer and seller in which such buyer and seller act independently of each other.
Transactions excluded— Such term shall not include any transaction involving a short sale or foreclosed property or any other distressed real property.
As completed valuation— The term as completed valuation means the estimated market value of collateral after the full completion and absorption of the development and construction associated with the highest and best use of the collateral.
Financial institution— The term financial institution means an entity regulated by, and under the supervision of, any appropriate Federal banking agency.
Good standing— The term good standing means making payments on a real estate loan in accordance with the agreement of such loan.
Real estate loan— The term real estate loan means any indebtness (secured by a mortgage, deed of trust, or other equivalent consensual security interest on real property) acquired for the purpose of purchasing or improving real property, including indebtness acquired for—
land acquisition;
land development; and
residential construction projects.
Total capital— The term total capital means the total risk-based capital of a financial institution as reported periodically by such institution in the Federal Financial Institutions Examination Council’s Call Report or Thrift Financial Reports, as applicable.
Viable project— The term viable project means a real estate project that a financial institution has determined continues to have a reasonable prospect of reaching completion and sale.
Workout methods— The term workout methods means techniques to prevent a real estate loan defaulting, including workout assistance, loan modifications, loan write downs, and flexibility on reappraisal methods.