Bank Agencies Act to Alleviate Credit Crunch : Finance: Regulators issue new guidelines that will prevent lenders from having to write off as many troubled real estate loans. The result should be more money to lend.

Hoping to ease the credit crunch, federal financial regulators Thursday issued new guidelines directing their field examiners to take a more lenient attitude toward real estate loans.

The Bush Administration, increasingly worried by the erratic performance of the economy, insisted that the agencies be less strict in forcing financial institutions to record big losses on real estate loans.

Treasury Secretary Nicholas F. Brady welcomed the new regulations, saying, “improving credit availability is necessary to sustaining economic recovery.”

Thursday’s announcement involved the details of the broad policy changes previously announced by the Administration and the financial agencies. The new guidelines send an unmistakable message to both bankers and examiners to take a more sympathetic attitude toward real estate borrowers with financial difficulties.

“Evaluation of real estate loans is not based solely on the value of the collateral but on a review of the borrower’s willingness and capacity to repay and on the income-producing capacity of the properties,” said the guideline statement issued by four regulatory agencies.

When banks and savings and loan associations take major losses on real estate loans, they reduce their capital and their ability to make other loans. If there are fewer writeoffs because of the new policies, banks will be able to increase lending, Administration officials believe.

The agencies affected by the new rules are the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Office of Thrift Supervision. Together, they supervise 12,000 banks and 2,200 savings and loans.

The Treasury said the new policies call for banks to work with borrowers experiencing temporary difficulties and to refinance sound commercial real estate loans. They also encourage examiners to “avoid a liquidation” approach to valuation. They should consider the potential for the real estate property when the market improves rather than insisting that the property is worth only the current depressed price.

More than 500 key officials from the regulatory agencies’ offices across the country will meet in Baltimore next month for a special briefing on the policies. The new instructions should “ensure that misunderstandings about supervisory policies do not impede the availability of credit to sound borrowers,” according to the joint statement by the agencies.

Bankers were generally pleased with the announcement.

“This will give bankers clear guidance and something they can point to when they are in discussion with examiners over a particular loan,” said Jim McLaughlin, director of agency relations for the American Bankers Assn. “The regulators are saying they are trying to make sure not to discriminate against real estate loans.”

Diane Casey, executive director of the Independent Bankers Assn. of America, called the guidelines “a good second step. They started with a general policy, and now they have put some meat into it.”

Regulators discussing the new rules at a press conference Thursday said they wouldn’t be affected by the Senate Banking Committee’s rejection on Wednesday of the renomination of Comptroller of the Currency Robert L. Clarke. Democrats had attacked Clarke for allegedly being lax in his regulation of real estate loans at failing banks in Texas and New England.

“I certainly would not say the Senate vote would impact examiners,” said Paul Fritts, executive director of supervision at the FDIC.