WASHINGTON -- Federal regulators are weighing a proposal by home builders to halve the capital requirements for some residential construction and apartment loans.
The proposal - under review by the Office of Thrift Supervision and the Office of the Comptroller of the Currency - is one of several options for easing capital requirements being discussed by regulators, who are under pressure to help lenders restart the stalled economy.
The builders' idea is attracting attention because regulators may have the room to make the adjustments without tampering with international risk-based capital agreements.
Builder Group Pushes Plan
The plan, crafted by the National Association of Homebuilders, would assign a 50% risk-based capital weight to construction loans to builders who have presold the homes to qualified buyers. Currently, such loans carry a 100% risk weight.
The practical effect would be to reduce the current capital requirement to 3.625% of the amount of the construction and apartment loans, from 7.25%.
There is a precedent for the change. Both the OTS and the OCC place residential construction loans to individuals who will occupy the house in the 50% risk basket. "We think it's a small step to [accord] that treatment of single-family loans to builders" who have already lined up buyers, said David Seiders, the association's chief economist.
No Estimawte of Stimulus
The association has not yet quantified how much single-family construction could be stimulated by adjusting the capital rules. "But certainly, the effect would have to be in the right direction," Mr. Seiders said.
A related proposal submitted to the Comptroller's Office would reduce to 50%, from 100% at present, the risk weight for multifamily mortgages that meet tight underwriting standards. The OTS already applies a 50% weight to apartment loans if the buyer pays 20% down and if the building has no more than 36 units and has been at least 80% occupied for one year.
The 153,000-member association sent the proposal to Comptroller Robert L. Clarke on Sept. 9. An outline also went to OTS Deputy Director Jonathan Fiechter, and a formal draft was on its way to OTS Director T. Timothy Ryan on Tuesday. Deputy Treasury Secretary John Robson has also been briefed.
Return to the Business
Mr. Fiechter talked up the proposal in a speech last week to the annual convention of the California League of Savings Institutions.
"We are actively considering ways we can get you back into that business, within limits and relative to your capital requirements," Mr. Fiechter told the thrift executives.
Elaborating on the idea in a telephone interview, Mr. Fiechter said the OTS was seeking ways to relieve the shortage of residential construction finance.
"We're trying to make sure the message is out" that institutions should feel comfortable about lending for nonspeculative projects, Mr. Fiechter added.