RegH5_20140729_omb.final

Supporting Statement for the
Recordkeeping Requirements Associated with the
Real Estate Lending Standards Regulation for State Member Banks
(Reg H-5; OMB No. 7100-0261)
Summary
The Board of Governors of the Federal Reserve System (Board), under delegated
authority from the Office of Management and Budget (OMB), proposes to extend for three years,
without revision, the Recordkeeping Requirements Associated with the Real Estate Lending
Standards Regulation for State Member Banks (Reg H-5; OMB No. 7100-0261). This
information collection is a mandatory recordkeeping requirement contained in the Board’s
Regulation H (12 CFR 208.51) that implements section 304 of the Federal Deposit Insurance
Corporation Improvement Act of 1991 (FDICIA). State member banks must adopt and maintain
a written real estate lending policy. Also, banks must identify their loans in excess of the
supervisory loan-to-value limits and report (at least quarterly) the aggregate amount of the loans
to the bank’s board of directors. There is no formal reporting form and the information is not
submitted to the Federal Reserve. The total annual burden is estimated to be 17,000 hours.
Background and Justification
Section 304 of FDICIA requires each of the federal banking agencies1 to adopt uniform
regulations prescribing standards for extensions of credit secured by liens on or interest in real
estate or made for the purpose of financing the construction of a building or other improvements
in real estate, regardless of whether a lien has been taken on the property. In establishing these
standards, the agencies considered the risk posed to the deposit insurance funds by such
extensions of credit, the need for safe and sound operation of insured depository institutions, and
the availability of credit.
On December 2, 1992, the agencies adopted uniform real estate lending standards
regulations. These regulations require depository institutions to adopt and maintain written real
estate lending policies that are consistent with safe and sound banking practices. The
institution’s lending policies must establish: loan portfolio diversification standards; prudent
underwriting standards, including loan-to-value limits; loan administration procedures; and loan
documentation, approval and reporting requirements. The policies must be appropriate to the
size of the institution and the nature and scope of its operations. The lending policies should also
reflect consideration of the Interagency Guidelines for Real Estate Lending Policies (Guidelines)
that the agencies established as an appendix to the regulation. These regulatory requirements
became effective on March 19, 1993. The institution's board of directors must review, at least
annually, the real estate lending policies.
While the Board has not amended its regulation since its adoption, the agencies have
issued guidance on real estate lending standards, including:

1

Board of Governors of the Federal Reserve System (Board); Office of the Comptroller of the Currency (OCC),
Treasury; the Federal Deposit Insurance Corporation (FDIC); and Office of Thrift Supervision (OTS), Treasury;
(collectively, the agencies)

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October 1999 - Interagency Guidance on High Loan-to-Value Residential Real Estate
Lending (SR letter 99-26) reminds banks of the risk posed by high loan-to-value
(LTV) residential loans and clarifies the supervisory LTV limits in the Guidelines.
May 2005 - Interagency Credit Risk Mitigation Guidance for Home Equity Lending
(SR letter 05-11) promotes sound risk management practices for banks’ home equity
lending programs.
September 2006 - Interagency Guidance on Nontraditional Mortgage Product Risks
(SR letter 06-15) reminds banks that such lending activity should comply with the
underwriting standards in the agencies’ Guidelines.
December 2006 - Interagency Guidance on Concentrations in Commercial Real
Estate Lending (SR letter 07-1) reminds banks with high CRE loan concentrations of
the importance of sound risk management practices.
July 2007 - Interagency Statement on Subprime Mortgage Lending (SR letter 07-12)
reinforces the underwriting standards of the agencies’ Guidelines.
October 2009 – Interagency Statement on Prudent Commercial Real Estate Loan
Workouts (SR letter 09-7) promotes supervisory consistency and enhances the
transparency of CRE workout transactions so that supervisory policies and actions do
not inadvertently curtail the availability of credit to sound CRE borrowers.
April 2012 – Federal Reserve Policy Statement on Rental of Residential Other Real
Estate Owned Properties (OREO) (SR Letter 12-5) reminds banks that regulations
and policies permit the rental of OREO properties as part of an orderly disposition
strategy.
June 2012 – Questions and Answers for Federal Reserve – Regulated Institutions
Related to the Management of Other Real Estate Owned (OREO) (SR Letter 12-10)
conveys various questions and answers with the intent of clarifying existing policies
and promoting prudent practices regarding the management of OREO.

Description of Information Collection
Each state member bank must maintain written internal real estate lending policies.
These policies may be incorporated into the bank's overall lending policies and must address the
requirement of the Board’s regulation and guidelines as described above. Further, the bank’s
own internal LTV limits may not exceed the supervisory LTV limits as set forth in the Board's
guidelines. The guidelines permit a bank to originate or purchase loans with LTV ratios in
excess of the supervisory limits, based on the support provided by other credit factors. For such
loans, the bank must identify the loan in its records as being in excess of the supervisory LTV
limits (referred to as high LTV loans). The aggregate amount of high LTV loans is to be
reported (aggregate report) at least quarterly to the bank's board of directors and may not exceed
100 percent of the bank’s total capital.
Time Schedule for Information Collection
The Federal Reserve System neither collects nor publishes the information. Bank
examiners verify compliance with the real estate lending standards regulation and guidelines
during examinations of state member banks.

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Legal Status
The Board’s Legal Division has determined that section 304 of FDICIA
(12 U.S.C. § 1828 (o)) authorizes the Federal Reserve to require the recordkeeping requirements
associated with the Board’s Regulation H (12 CFR 208.51). Since the information is not
collected by the Federal Reserve, no issue of confidentiality under the Freedom of Information
Act arises. However, information gathered by the Federal Reserve during examinations of state
member banks would be deemed exempt from Freedom of Information Act (FOIA) disclosure by
exemption 8 of FOIA. (5 U.S.C. § 552(b)(8)). In addition, exemptions (b)(4) and (b(6) of FOIA,
(5 U.S.C. § 552(b)(4) and (b)(6)) also may exempt from disclosure certain data (specifically,
individual loans identified as in excess of supervisory loan-to-value limits) collected in response
to these requirements if gathered by the Federal Reserve, depending on the particular
circumstances. These additional exemptions relate to confidential commercial and financial
information, and personal information, respectively. Applicability of these exemptions would
have to be determined on a case-by-case basis.
Consultation Outside the Agency
All of the Board’s rulemaking activities under Regulation H are subject to the notice and
comment requirements of the Administrative Procedure Act. 5 U.S.C. § 551 et seq.
On July 24, 2014, the Federal Reserve published a notice in the Federal Register
(79 FR 43045) requesting public comment for 60 days on the extension, without revision, of the
Recordkeeping Requirements Associated with the Real Estate Lending Standards Regulation for
State Member Banks. The comment period for this notice expires on September 22, 2014. The
Federal Reserve did not receive any comments. On October 1, 2014, the Federal Reserve
published a final notice in the Federal Register (79 FR 59263).
Sensitive Questions
This collection of information contains no questions of a sensitive nature, as defined by
OMB guidelines.
Estimate of Respondent Burden
As of June 2013, 850 state member banks were required to provide an aggregate report to
the bank’s board of directors. There were no de novo state member banks in the past three years
that would have been required to create a real estate lending policy statement. However, the
number of respondents may reach or exceed 10.2 To avoid potentially underestimating the
burden, the Federal Reserve has increased the number of respondents to one. The annual
recordkeeping burden for real estate lending standards is estimated to be 17,000 hours. These

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Reports with fewer than 10 respondents per year are not subject to the Paperwork Reduction Act (PRA); however,
because the reporting requirements pertain to all State Member Banks, the proposal is processed following PRA
procedures.

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recordkeeping requirements represent less than1 percent of the total Federal Reserve System
paperwork burden.

Aggregate Report
to the Board of
Directors
Policy Statement
(de novo)

Estimated
number of
respondents3

Estimated
annual
frequency

Estimated
average
hours per
response

Estimated
Total annual
burden hours

849

4

5

16,980

1

1

20

Total

20
17,000

The annual cost to state member banks is estimated to be $865,3004
Estimate of Cost to the Federal Reserve System
The cost to the Federal Reserve System associated with this recordkeeping requirement is
minimal because there are no reporting forms and the information is not submitted to the Federal
Reserve.

3

Of the 850 respondents required to comply with this information collection, 630 are considered a small entity as
defined by the Small Business Administration (i.e., entities with less than $550 million in total assets).
http://www.sba.gov/content/table-small-business-size-standards
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Total cost to the public was estimated using the following formula: percent of staff time, multiplied by annual
burden hours, multiplied by hourly rates (30% Office & Administrative Support at $18, 45% Financial Managers at
$61, 15% Lawyers at $63, and 10% Chief Executives at $86). Hourly rate for each occupational group are the
(rounded) mean hourly wages from the Bureau of Labor and Statistics (BLS), Occupational Employment and Wages
2013, www.bls.gov/news.release/ocwage.nr0.htm. Occupations are defined using the BLS Occupational
Classification System, www.bls.gov/soc/