WASHINTON -- The Office of Thrift Supervision said Monday that it hopes to spur home-building loans by lowering capital requirements for low-risk construction credits held by savings institutions.

A rule proposed by the OTS would move low-risk home construction loans to the 50% risk category from the 100% risk category.

In other words, thrifts would need to hold capital against half the amount of the loan, rather than against the entire principal.

To Spur Lending

The agency expects to publish the proposal in the Federal Register by early January, and will accept public comments for 30 days. The agency could issue a final rule after the comment period ends.

"My hope is that it will spur construction lending, but it will also modify behavior so that lending is done on a low-risk basis," said T. Timothy Ryan, director of the federal thrift agency.

The rule would apply only to the safest type of residential construction lending: when there is a firm commitment for a permanent mortgage, and when the buyer has made a substantial deposit that would be forfeited if he backs out of the deal.

Sharing the Risks

In addition, both the builder and home buyer would have substantial equity at risk that would be lost if the builder defaulted on the loan or the buyer did not consummate the contract.

"We are recognizing that presold potentially nonspeculative home building should be granted at lower risk-weighting from a capital standpoint than home building which would be speculative," Mr. Ryan said.

"Will they use it? We will just have to see."

Mr. Ryan said OTS officials discussed the rule at a meeting a month ago in Washington with a number of executives who run large thrifts.

"They all thought it would make a difference as far as availability of homes in the future," he said.

The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency are expected to follow with similar changes in capital-weighting for low-risk home construction loans.

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