Other Real Estate-Related Collateral a. New business activity notice requirement. The Modernization Act amended section 10(a)(4) of the Bank Act by removing the limit on the dollar amount of advances that may be secured by other real estate-related collateral, which had been set at 30 percent of the member’s capital. See Modernization Act, section 604(a)(5)(B). Section 950.7(a)(4) of the final rule implements this change by removing the 30 percent limitation. As discussed in the SUPPLEMENTARY INFORMATION section of the proposed rule, because the Banks have had no or limited experience with accepting other real estate-related collateral, the Banks will need to build capacity and exercise caution in evaluating and accepting such collateral. For this reason, the proposed rule treated the acceptance of other real estate-related collateral as a new business activity, and proposed § 950.7(a)(4)(iii) prohibited a Bank from making total advances to all members secured by other real estate-related collateral in an aggregate amount exceeding 25% of the highest level of advances previously secured by such collateral (125% trigger), until the Bank met the new business activity requirements of proposed part 980. Proposed § 980.3 required a Bank to provide at least 60 days prior notice to the Finance Board to include, among other things, information demonstrating the Bank’s capacity, sufficiency of experience and expertise to safely value, discount and manage the risks associated with other real estate-related collateral. Under proposed § § 980.4 and 980.5, the Bank was permitted to commence acceptance of other real- estate related collateral if, 60 days after receipt by the Finance Board of the notice, the Finance Board had not issued to the Bank a notice of disapproval, a notice instructing the Bank not to commence the new activity pending further consideration by the Finance Board, a notice of intent to examine, or a request for additional information, or if the Finance Board had issued a letter of approval. The Finance Board requested comment on what the appropriate threshold should be for triggering the new business activity requirement with respect to the use of other real estate- related collateral, and whether there should be any other limits on the use of such collateral to ensure that the Banks’ lending against this type of collateral was done in a safe and sound manner. A number of commenters opposed the proposed 125% trigger, stating that it was too severe, and several suggested a higher trigge...
