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Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Proposed Rules List of Subjects in 12 CFR Part 628
Accounting, Agriculture, Banks, Banking, Capital, Government securities, Investments, Rural areas.
For the reasons stated in the preamble, part 628 of chapter VI, title 12
of the Code of Federal Regulations is proposed to be amended as follows:
PART 628CAPITAL ADEQUACY OF
SYSTEM INSTITUTIONS
1. The authority citation for part 628
continues to read as follows:

Authority: Secs. 1.5, 1.7, 1.10, 1.11, 1.12, 2.2, 2.3, 2.4, 2.5, 2.12, 3.1, 3.7, 3.11, 3.25, 4.3, 4.3A, 4.9, 4.14B, 4.25, 5.9, 5.17, 8.0, 8.3, 8.4, 8.6, 8.8, 8.10, 8.12 of the Farm Credit Act 12
U.S.C. 2013, 2015, 2018, 2019, 2020, 2073, 2074, 2075, 2076, 2093, 2122, 2128, 2132, 2146, 2154, 2154a, 2160, 2202b, 2211, 2243, 2252, 2279aa, 2279aa3, 2279aa4, 2279aa6, 2279aa8, 2279aa10, 2279aa12; sec.
301a, Pub. L. 100233, 101 Stat. 1568, 1608
12 U.S.C. 2154 note; sec. 939A, Pub. L.
111203, 124 Stat. 1326, 1887 15 U.S.C.
78o7 note.

2. Amend 628.2 by adding paragraph 6 to the definition of Corporate exposure and a new definition, in alphabetical order, for High volatility commercial real estate HVCRE
exposure to read as follows:

628.2

Definitions.

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Corporate exposure

6 A high volatility commercial real estate HVCRE exposure;

High volatility commercial real estate HVCRE exposure means:
1 A credit facility secured by land or improved real property that, prior to being reclassified by the System institution as a non-HVCRE exposure pursuant to paragraph 6 of this definition:
i Primarily finances, has financed, or refinances the acquisition, development, or construction of real property;
ii Has the purpose of providing financing to acquire, develop, or improve such real property into income producing real property; and iii Is dependent upon future income or sales proceeds from, or refinancing of, such real property for the repayment of such credit facility.
2 An HVCRE exposure does not include a credit facility financing:
i The acquisition, development, or construction of properties that are:
A Oneto four-family residential properties, provided that the dwelling including attached components such as garages, porches, and decks represents at least 50 percent of the total appraised
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value of the collateral secured by the first or subsequent lien. Credit facilities that do not finance the construction of oneto four-family residential structures, but instead solely finance improvements such as the laying of sewers, water pipes, and similar improvements to land, do not qualify for the oneto four-family residential properties exclusion;
B Reserved C Agricultural land, as defined in 619.9025 of this chapter, or real estate used as an integral part of an aquatic operation. This provision applies only to financing for the agricultural and aquatic needs of bona fide farmers, ranchers, and producers and harvesters of aquatic products under 613.3000 of this chapter. This provision does not apply to loans for farm property construction and land development purposes;
ii The acquisition or refinance of existing income-producing real property secured by a mortgage on such property, if the cash flow being generated by the real property is sufficient to support the debt service and expenses of the real property, in accordance with the System institutions applicable loan underwriting criteria for permanent financings;
iii Improvements to existing income producing improved real property secured by a mortgage on such property, if the cash flow being generated by the real property is sufficient to support the debt service and expenses of the real property, in accordance with the System institutions applicable loan underwriting criteria for permanent financings; or iv Commercial real property projects in which:
A The loan-to-value ratio is less than or equal to the applicable loan-to-value limit set forth in Appendix A to this part;
B The borrower has contributed capital of at least 15 percent of the real propertys appraised, as completed value to the project. The use of an as is appraisal is allowed in instances where an as completed value appraisal is not available. The use of an evaluation of the real property instead of an appraisal to determine the as completed appraised value is allowed if 614.4260c of this chapter permits evaluations to be used in lieu of appraisals. The contribution may be in the form of:
1 Cash;
2 Unencumbered readily marketable assets;
3 Paid development expenses out-ofpocket; or
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4 Contributed real property or improvements; and C The borrower contributed the amount of capital required by paragraph 2ivB of this definition before the System institution advances funds other than the advance of a nominal sum made in order to secure the System institutions lien against the real property under the credit facility, and such minimum amount of capital contributed by the borrower is contractually required to remain in the project until the HVCRE exposure has been reclassified by the System institution as a non-HVCRE exposure under paragraph 6 of this definition.
3 An HVCRE exposure does not include any loan made prior to the effective date of this rule.
4 An HVCRE exposure does not include a credit facility reclassified as a non-HVCRE exposure under paragraph 6 of this definition.
5 Value of contributed real property:
For the purposes of this HVCRE
exposure definition, the value of any real property contributed by a borrower as a capital contribution is the appraised value of the property as determined under standards prescribed in accordance with FCA regulations at subpart F of part 614 of this chapter, in connection with the extension of the credit facility or loan to such borrower.
6 Reclassification as a non-HVCRE
exposure: For purposes of this HVCRE
exposure definition and with respect to a credit facility and a System institution, a System institution may reclassify an HVCRE exposure as a nonHVCRE exposure upon:
i The substantial completion of the development or construction of the real property being financed by the credit facility; and ii Cash flow being generated by the real property being sufficient to support the debt service and expenses of the real property, in accordance with the System institutions applicable loan underwriting criteria for permanent financings.
7 Reserved.

3. Amend 628.32 by adding paragraph j to read as follows:
628.32

General risk weights.

j High volatility commercial real estate HVCRE exposures. A System institution must assign a 150-percent risk weight to an HVCRE exposure.

4. Amend 628.63 by adding entry b8 to Table 3 to 628.63 to read as follows:

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