WASHINGTON -- Regulators plan to allow banks and thrifts to lend between 65% and 100% of a property's value, depending on the type of real estate.
On each kind of loan covered by the rules, institutions will be able to lend more than allowed under an initial proposal in June.
Effective in March
The more generous standard is almost certain to be adopted and would take effect in March. All four members of the Federal Deposit Insurance Corp. board signaled their approval Tuesday in preparation for a final vote on Oct. 27.
The Federal Reserve Board is likely to adopt the new guidelines on Oct. 21. The Office of the Comptroller of the Currency and the Office of Thrift Supervision issued press releases Tuesday endorsing the new rules.
The new loan-to-value ratios, compared with the previous proposal, are: 65% on raw land (up from 60%); 75% on land development such as streets and sewers (65%); 80% on nonresidential construction (75%); 85% on one- to four-family residential construction (no set limit); 85% on improved property (75%).
Also, the rule would put no ceiling on residential mortgages or home equity loans if the borrower gets private mortgage insurance. Without insurance, the ratio is 90%.
"I feel the ratios we have adopted are generous," Acting FDIC Chairman Andrew C. Hove said at the agency's open meeting Tuesday.
OTS Director Timothy Ryan said, "This balances the need for safe and sound lending standards and credit availability in real estate markets."
When the real estate lending guidelines take effect, it will end a decade in which banks and thrifts could make such loans without restriction.
The new limits are the same that prevailed until they were repealed by the Garn-St Germain Depository Institutions Act of 1982. Former FDIC Chairman L. William Seidman began a campaign to reimpose limits in the summer of 1991 after bad real estate loans had brought down hundreds of banks.
In the FDIC Improvement Act last December, Congress instructed the regulators to come up with new real estate regulations. All four agencies issued proposals in June.
But Treasury Department officials, committed to easing the credit crunch, persuaded three of the four to go with more flexible guidelines rather than regulations.
"The FDIC staff would have preferred a regulation," the agency's director of supervision, Paul Fritts, said Tuesday. "But we do need a uniform policy among regulators."
Banks and thrifts will get a regulation that instructs them to make prudent real estate loans, but the details will be contained in accompanying guidelines. There are no financial penalties for violating guidelines.
Steve Wechsler, president of the National Realty Committee, which represents commercial real estate owners and lenders, praised the move toward guidelines. "It gives more flexibility and discretion to the lenders," he said.
Mr. Wechsler also said he is pleased the new rules would not apply to workouts of troubled loans. "We had serious concerns that if they had come out as originally proposed, then they could have further inhibited the marketplace in a very serious way."
Banks have about $200 billion in short-term commercial real estate loans, so-called miniperms, on their books. Many are coming due and the borrowers cannot repay the banks or find alternative financing.
These loans will not be affected by the new rules, said Bob Miailovich, assistant director of policy at the FDIC. He said, "They intent here is not to do anything with existing loans."
Other Lending Possible
The regulators also plan to allow banks and thrifts to make some real estate loans that go outside the guidelines. While a final amounts has yet to be agreed upon, it appears that a bank or thrift will be able to make nonconforming real estate loans totaling at least 100% of its capital.
The FDIC staff opposes making any exceptions to the guidelines, but Mr. Hove said after the meeting that he thinks banks should be able to make some loans that do not meet the new standards.
Also at the Tuesday meeting, the FDIC decided to:
* Publish for comment a wide-ranging plan that changes the deposit insurance on various accounts. Effective Dec. 19, 1993, people with retirement funds spread in several accounts, such IRA or Keogh plans, would get $100,000 in total insurance for all accounts, not for each account.
Also, people with money in a deferred compensation plan sponsored by a state or local government or a nonprofit company will get the full $100,000 of insurance. To protect this insurance, these plans must ensure that their institution meets capital standards.
* Propose a policy statement requiring banks to notify customers when closing branches Customers must get 90 days written notice and a sign must be posted in the lobby 30 days before the closing.
The notice must explain in detail why the branch is being abandoned. Notification of branch relocations is not required.