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FDIC Federal Register Citations Charter Bank
From: Andy Niemer [mailto:AndrewN@charterbankwa.com] Robert E. Feldman Re: Proposed Guidance - Concentrations in Commercial Real Estate Lending, Sound Risk Management Practices – FIL-4-2006, January 13, 2006 Dear Mr. Feldman, Thank you for the opportunity to comment on the proposed guidance on CRE concentrations. While we understand the regulatory agencies concerns regarding real estate concentrations, we feel that perhaps the proposed guidance swings the pendulum a bit too far in a negative direction. As many of the comments you have received have stated, the proposed guidance negatively impacts community banks by hurting profitability through the requirement to increase capital. In addition, excessive oversight will contribute to the rapid demise of the small commercial real estate product within community banking. Large banks, which will not be impacted by the proposed requirements, and conduit lenders will be the only sources of funding for small commercial real estate loans. Regarding the 100% and 300% CRE to capital ratios used to identify high CRE concentrations, it is noted that those ratios are based on call report data, which is inconsistent with the definitions of CRE as provided in the proposal, namely the exclusion of owner-occupied CRE. Both the ratio and the data used to evaluate them should be reviewed for adequacy. The guidance also suggests the addition of unsecured loans to developers in the concentration calculations. It is recommended that unsecured loans should only be included if it is determined that a bank is using unsecured lending as a means of avoiding CRE scrutiny. Many banks have very sound lending policies for unsecured loans which focus on liquidity. To include all such loans to borrowers involved in real estate is excessive. It is encouraging that the regulators have recognized the lower risk in owner-occupied CRE transactions by excluding them from concentration calculations. Likewise, those exclusions should be expanded to include custom construction loans and "pre-sold" construction loans. Both of these have well defined take-out loans based on the consumer for whom the residence is being built. In essence, they are owner occupied residential real estate loans. Additionally, low loan to value (e.g. 50% or less) loans carry much less risk than those made even at the supervisory guideline LTVs, and should also be excluded. Finally, whatever is determined to be the final guidance, it is requested that banks be given ample time for implementation of any new requirements. Community banks generally lack the data processing resources of their larger competitors, and the guidance as suggested will require a great deal of work to revise loan system codes and create new reports. Sincerely, | ||
| Last Updated 04/18/2006 | Regs@fdic.gov | |