Federal Deposit
Insurance Corporation

From: John Valaas [mailto:John.Valaas@firstmutual.com]
Sent: Friday, March 31, 2006 4:00 PM
To: Comments
Subject: Proposed Guidance on Concentrations in Commercial Real Estate Lending

To: Federal Deposit Insurance Agency

I am writing to offer a brief comment, or recommendation, on the proposed inter-agency regulatory guidance titled “Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices”.

I would ask that you exclude custom construction loans from an institution’s commercial real estate (CRE) exposure for purposes of this regulatory guidance.

As currently proposed, single family custom construction loans are included in the definition of CRE. Custom construction loans are made to the owner of the house. That owner will occupy the house upon completion. That is as opposed to a single family residential speculative (spec) construction loan, which is made to builder who hopes to find a buyer for the house once it is completed.

In my view, there is a vast level of difference in risk between custom construction loans and other CRE loans. Custom construction loans are not speculative in nature, the owner is known and the owner’s credit has been evaluated as being satisfactory prior to commencement of construction. I would urge that custom construction loans not be included in an institution’s CRE exposure for purposes of this regulatory guidance.

Thank you.

John R. Valaas
President & CEO
First Mutual Bank