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Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Proposed Rules would have to contribute capital of at least 15 percent of the real propertys value to the project. Third, the 15
percent amount of contributed capital would have to be contributed prior to the institutions advance of funds other than a nominal sum to secure the institutions lien on the real property.
Fourth, the 15 percent amount of contributed capital would have to be contractually required to remain in the project until the loan could be reclassified as a non-HVCRE exposure.
The proposed interpretations of terms relevant to the four criteria for this exclusion are discussed below.
a. Loan-to-Value Limits To qualify for this exclusion from the HVCRE exposure definition, the FBRAs rule requires that a credit facility be underwritten in a safe and sound manner in accordance with the Supervisory Loan-to-Value Limits contained in the Interagency Guidelines for Real Estate Lending Policies.18 These Interagency Guidelines require banking institutions, for real estate loans, to establish internal LTV limits that do not exceed specified supervisory limits ranging from 65 percent for raw land to 85 percent for 1- to 4-family residential and improved property.
The FCA has not adopted these supervisory LTV limits.19 Nevertheless, FCA examination guidance from 2009
makes clear that FCA expectations are consistent with the Interagency Guidelines, including the supervisory LTV limits.20 We believe exposures should satisfy these LTV limits to qualify for this exclusion to the HVCRE
definition. We propose to adopt these LTV limits, for the purpose of the HVCRE definition only, in a new Appendix A to part 628.

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b. Contributed Capital Under the proposal, cash, unencumbered readily marketable assets, paid development expenses outof-pocket, and contributed real property 18 See 12 CFR part 365, subpart A, Appendix A
FDIC; 12 CFR part 208, Appendix C FRB; 12 CFR
part 34, Appendix A OCC.
19 Section 1.10a of the Act and 614.4200b1
of FCA regulations require at least an 85 percent LTV ratio for long-term real estate mortgage loans that are comprised primarily of agricultural or rural property, except for loans that have government guarantees or are covered by private mortgage insurance. Under 614.4200b1, agricultural or rural property includes agricultural land and improvements thereto, a farm-related business, a marketing or processing operation, a rural residence, or real estate used as an integral part of an aquatic operation.
20 Examination Bulletin FCA 20092, Guidance for Evaluating the Safety and Soundness of FCS
Real Estate Lending focusing on land in transition, December 2009.

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or improvements would count as forms of capital for purposes of the 15 percent capital contribution criterion. A System institution could consider costs incurred by the project and paid by the borrower prior to the advance of funds by the System institution as out-ofpocket development expenses paid by the borrower.
The FBRAs version of the rule provides that the value of contributed real property means the appraised value of real property contributed by the borrower as determined under the standards prescribed by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 12 U.S.C.
3339 FIRREA. Because FCA is not named in FIRREA as one of the Federal financial regulatory agencies covered by its real estate appraisal provisions, our proposal does not expressly require that the value must be determined under the FIRREA standards; rather, we propose to require that the value must be determined in accordance with FCA
regulations at Subpart F of 12 CFR part 614. FCAs collateral evaluation rules are generally similar, although not identical, to the FIRREA standards, however, and therefore there should be few substantive differences in the approach to valuation.
FCA has long recognized that Congress, through the enactment of FIRREA, expressed a strong belief that all financial transactions involving real property collateral should be supported by adequate and accurate collateral evaluations. Congress also expressed the belief that such collateral evaluations should be based on standards and guidelines that are consistently applied by the financial and appraisal industries. We believe that following the collateral evaluation requirements of FIRREA and the overarching beliefs of Congress is an essential element of the safe and sound lending activities covered by the System. FCAs collateral evaluation regulations, at 12 CFR part 614, subpart F, are generally similar, although not identical, to the FIRREA
appraisal requirements.21
The value of the real property that could count toward the 15 percent contributed capital requirement would be reduced by the aggregate amount of any liens on the real property securing the HVCRE exposure.
To ensure that tangible equity is invested in the project, funds borrowed 21 See FCA Informational Memorandum, Guidance on Addressing Personal and Intangible Property within Collateral Evaluation Policies and Procedures 614.4245, August 29, 2016; FCA
Examination Manual EM22.6, Loan Portfolio Management: Collateral Risk management, dated August 20, 2014.

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from a third party such as another lender, an owner or parent organization, or a related party could count toward the capital contribution as long as the borrowed funds are not derived from, related to, or encumber any collateral that has been contributed to the project.
Additionally, the recognition of any contribution of funds to a project would have to be in conformance with safe and sound lending practices and in accordance with the System institutions underwriting criteria and internal policies.
In addition, contributed property or improvements would have to be directly related to the project to be eligible to count towards the capital contribution.
Real estate not developed as part of the project would not be counted toward the capital contribution.
We would interpret the term unencumbered readily marketable assets to mean insured deposits, financial instruments, and bullion in which the System institution has a perfected interest. For collateral to be considered readily marketable by a System institution, the institutions expectation would be that the financial instrument and bullion would be salable under ordinary circumstances with reasonable promptness at a fair market value determined by quotations based on actual transactions, an auction or similarly available daily bid and ask price market.22 Readily marketable collateral should be appropriately discounted by the institution consistent with the institutions usual practices for making loans secured by such collateral.
Examiners may review the reasonableness of a System institutions underwriting criteria to ensure the real estate lending policies are consistent with safe and sound banking practices.
c. Value Appraisal Under the proposal, the 15 percent capital contribution would be required to be calculated using the real propertys value. An appraised as completed value is preferred; however, an as completed value appraisal may not always be available, such as in the case of purchasing raw land without plans for development in the near term, which would typically have an as is value appraisal. Therefore, we propose to permit the use of an as is appraisal, if an as completed appraisal is not available, for purposes of the 15 percent capital contribution.23
22 This interpretation is consistent with the definitions of unencumbered and marketable in 615.5134 of our regulations.
23 We intend that the terms as completed and as is, as used in the definition of HVCRE

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