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Subject: Risk Based Capital Multifamily Housing -- Final Rule
Date: March 18, 1994
To: Chief Executive Officers of National Banks, Department and Division Heads, and all Examining Personnel
Description: Final Rule
This bulletin transmits the final rule on multifamily housing. The rule lowers the risk weight on multifamily housing loans and certain mortgage backed securities to 50 percent. The OCC published this final rule in the Federal Register on March 9, 1994. The final rule is effective immediately upon publication in the Federal Register.
On September 17, 1992, the Office of the Comptroller of the Currency (OCC), published a notice of proposed rulemaking (NPRM) to modify the capital treatment of assets secured by multifamily residential property. This proposed rule was consistent with sections 618(b) of the Resolution Trust Corporation Refinancing, Restructuring, and Improvement Act of 1991 (RTCRRIA) and 305(b)(1)(B) of the Federal Deposit Insurance Corporation Improvement Act (FDICIA). The NPRM included a proposal to assign to the 50 percent risk-weight category certain loans secured by qualifying multifamily residential properties. The NPRM also proposed that qualifying privately issued mortgage backed securities (MBS) secured by qualifying multifamily residential property loans qualify for a 50 percent risk weight. In addition, the final rule extends the current OCC capital treatment for assets sold with recourse on a pro rata basis to loans secured by multifamily residential property. The Federal Deposit Insurance Corporation (FDIC), Federal Reserve Board (FRB), and Office of Thrift Supervision (OTS) promulgated similar rules.
The OCC's final rule on multifamily housing fulfills the statutory requirements in RTCRRIA and FDICIA. The rule amends the risk-based capital rules to include in the 50 percent risk weight category loans secured by qualifying multifamily residential properties. This includes loans secured by apartment buildings, cooperatives, and joint-use properties. Qualifying loans must meet certain loan-to-value, amortization, maturity, seasoning, and other prudent underwriting requirements.
In addition, the final rule reduces the risk weight on qualifying privately issued mortgage backed securities (MBS) to 50 percent. To be eligible to receive the lower risk weight, the MBS must be secured, at origination, by qualifying loans on multifamily residential properties.
In the RTCRRIA, Congress required that the OCC allow banks to use sales treatment for that portion of multifamily residential property loans sold on a pro rata loss sharing basis. This is consistent with the OCC's existing rules on recourse. Accordingly, the final rule merely restates the current OCC policy on assets sold with recourse on a pro rata basis. The RTCRRIA also required the OCC to take into account other loss sharing arrangements. In this regard, the OCC is working with the Federal Financial Institutions Examination Council (FFIEC) to comprehensively consider other recourse issues.
This amendment will also foster lending for reconstruction of multifamily residential housing in areas of the country recently devastated by natural disaster. For these reasons, the OCC is waiving the normal 30 day delay in effectiveness of this final rule. Accordingly, this final rule is effective on March 9, 1994.
For Further Information Contact
Questions concerning this final rule should be directed to the Office of the Chief National Bank Examiner (202) 874 - 5070.
Donald G. Coonley