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Federal Register / Vol. 86, No. 163 / Thursday, August 26, 2021 / Proposed Rules
In addition, we would allow the use of a collateral evaluation of the real property instead of an appraisal to determine the value, for purposes of the HVCRE exposure definition, where our appraisal regulations 24 permit collateral evaluations to be used in lieu of appraisals.
The FBRAs regulatory exclusion for Certain Commercial Real Property Projects specifies that an as completed value appraisal must be used. This is consistent with the EGRRCPAs statutory definition for the Certain Commercial Real Property Projects exclusion, which included only appraised as completed values. As explained by the FBRAs, the EGRRCPA
required this appraised as completed value for their regulations. In the preamble of their final rule, the FBRAs clarified their definition allows as is appraisals for raw land loans and collateral evaluations for loans in amounts under certain specified thresholds in their appraisal regulations.25 However, the FBRAs did not change the wording of the EGRRCPAs statutory definition in their regulations to reflect this interpretation.
The EGRRCPA does not apply to System institutions, and FCA is not required to adopt the statutory definition.
Accordingly, we propose to deviate from the statutory definition for Certain Commercial Real Property Projects to include as is appraisals and collateral evaluations to align our regulation with the FBRAs interpretation of the definition.
d. Project
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In this proposal, the 15 percent capital contribution and the appraisal or collateral evaluation would be measured in relation to a project. Some credit facilities for the acquisition, development, or construction of real property may have multiple phases as part of a larger construction or development project. In the case of a project with multiple phases, in order for a loan financing a phase to be eligible for the contributed capital exclusion, the phase must have its own exposure, would have the same meaning as in the Interagency Appraisal and Evaluation Guidelines December 2, 2010, issued by the OCC, the FRB, the FDIC, the Office of Thrift Supervision, and the National Credit Union Administration. Under these Guidelines, as completed reflects propertys market value as of the time that development is expected to be completed, and as is means the estimate of the market value of real property in its current physical condition, use, and zoning as of the appraisals effective date.
24 See 614.4260c, which sets forth the types of real estate-related transactions that do not require appraisals.
25 See 84 FR 68019, 68027 December 13, 2019.

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appraised value or an appropriate evaluation in order for it to be deemed a separate project for the purpose of the 15 percent capital contribution calculation. We expect that each project phase being financed by a credit facility have a proper appraisal or evaluation with an associated as completed or as is value. Where appropriate and in accordance with the System institutions applicable underwriting standards, a System institution may look at a multiphase project as a complete project rather than as individual phases.
5. Reclassification as a Non-HVCRE
Exposure Under the proposal, a System institution would be allowed to reclassify an HVCRE exposure as a nonHVCRE exposure when the substantial completion of the development or construction on the real property has occurred and the cash flow generated by the property covered the debt service and expenses on the property in accordance with the institutions loan underwriting standards for permanent financings. We expect each System institution to have prudent, clear, and measurable underwriting standards, which we may review through the examination process.
6. Applicability Only to Loans Made After Effective Date In consideration of the changes this rule would require, we propose that only loans made after the effective date of this rule would be subject to the HVCRE risk-weighting requirements.
Loans made prior to the rules effective date could continue to be risk-weighted as if the rule had not been adopted.
After the effective date, when a System institution modifies a loan or if a project is altered in a manner that materially changes the underwriting of the credit facility such as increases to the loan amount, changes to the size and scope of the project, or removing all or part of the 15 percent minimum capital contribution in a project, the institution must treat the loan as a new exposure and reevaluate the exposure to determine whether or not it is an HVCRE exposure.
C. Impact on Prior FCA Board Actions FCA Bookletter BL070 authorizes System institutions to assign a reduced risk-weight lower than the 100 percent risk-weight generally assigned to commercial real estate exposures under FCA regulation 628.32f1 for rural water and wastewater RWW facilities
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that satisfy criteria.26 BL070 does not permit this reduced risk-weight for exposures when a RWW facility is not fully operational due to initial construction or major renovation;
instead, institutions must assign riskweights to these major construction exposures in accordance with Part 628
of our regulations.27 If this proposed regulation is adopted, BL070 would continue to assign risk-weights to these major construction exposures in accordance with Part 628 as it would be amended; in other words, an exposure to a RWW facility that is not fully operational due to initial construction or major renovation would continue to be assigned a risk-weight in accordance with Part 628 either as an HVCRE
exposure or as a corporate exposure under 628.32f1, depending on whether it satisfies the definition of HVCRE exposure or not. Under BL
070, a RWW exposure during construction or major renovation, when the facility is not fully operational, may not be assigned a reduced risk-weight.
All other RWW exposures would continue to receive reduced risk-weights in accordance with BL070.
FCA Bookletter BL053 authorizes System institutions to assign a reduced risk-weight to certain electric cooperative exposures, including for some power plants that are in the construction phase.28 This treatment is authorized under our reservation of authority.29 In the future, we may consider whether the risk-weight authorized by BL053 remains appropriate.
III. Regulatory Flexibility Act Analysis Pursuant to section 605b of the Regulatory Flexibility Act 5 U.S.C. 601
et seq., FCA hereby certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities.
Each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities.
Therefore, System institutions are not small entities as defined in the Regulatory Flexibility Act.
26 BL070: Revised Capital Treatment for Certain Water and Wastewater Exposures, November 8, 2018.
27 BL070 does allow the reduced risk-weight for exposures during routine repair, upgrade, or maintenance projects that do not impede the facilitys full operation.
28 FCA BL053: Revised Regulatory Capital Treatment for Certain Electric Cooperatives Assets, February 12, 2007.
29 See 628.1d3.

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