Interagency Guidelines for Real Estate Lending Policies

7/8/2010

By Daniel R. McDonald

Interagency Guidelines for Real Estate Lending Policies, dated December 31, 1992, was enacted for financial institutions to maintain a written policy that addresses appropriate limits and standards for extensions of credit that are secured by liens or interests in real estate for the purpose of financing construction of a building or other improvements. The function of these guidelines is to assist financial institutions in adopting and maintaining a real estate lending policy that is appropriate for the size of the institution and to meet the requirements of the regulation.

Institutions are to establish their own internal loan-to-value limits for real estate loans. Bank established loan-to-value limits are not to exceed the supervisory limits as outlined in 12 C.F.R. Appendix A to Part 365. Loans exceeding the supervisory loan-to-value limits should be reported to the bank’s Board of Directors at a least quarterly.

The aggregate amount of all loans in excess of supervisory loan-to-value limits should not exceed 100 percent of total capital, however, there are several types of transactions that are excluded from these limits. Three of those exclusions are:

• Loans that are renewed, refinanced, or restructured without advancing new funds or increasing a line of credit.
• Loans that are renewed, refinanced, or restructured as with a workout loan situation either with or without the advancement of new funds where an orderly liquidation plan is evident to reduce the risk of loss or maximize recovery of the loan.
• Loans that, if during the term of the loan, a new appraisal or evaluation is received that reflects a lower value that would result in a lower loan-to-value exception.

For more information, these guidelines and a full list of the excluded transactions can be found at the FDIC website by clicking here.