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38 | M R EP O RT FEATURE fit for any bank looking to not simply meet its regulatory obliga- tions but also make a difference by providing credit that helps stabilize the housing market of LMI neighborhoods. While not official regulatory guidance, both the OCC and FDIC have indicated in respec- tive publications that banks may earn consideration under the CRA for renovation lend- ing activities. Lending activities can be either direct lending to consumers or the purchasing of FHA 203(k), Homestyle, or CHOICERenovation loans that have been made within the bank's assessment area. Lending activi- ties to LMI borrowers—especially those that assist to stabilize or revitalize financially distressed areas—are examples of the intent behind the CRA. Compliance and Creativity F or a bank that decides to enter the renovation lending space through direct lending, there are several factors to consider includ- ing employee training, operational considerations, compliance, and sales and marketing. First, banks should make sure their front-line lending staff has had the training they need to assure they are accurately representing the benefits of a renovation loan product to a consumer. Training materials on these programs may be available at the respective agen- cies' website or from secondary market investors who will pur- chase these loans after closing. A renovation loan generally requires more explanation than a traditional mortgage purchase product but learning the ins and outs of it are not impossible. Second, from an operational standpoint, banks need a specific "infrastructure" in terms of talent for managing different aspects of renovation lending, includ- ing processing, underwriting, closing, and post-closing stages of the loan's lifecycle. For the post-closing/rehabilitation phase, staff with experience in construc- tion lending and the managing of draws should have the basic skill set necessary for administering the repair escrow accounts and draw process inherent to renovation lending. To address compliance require- ments, if the bank is required to report HMDA data annually, it is advisable to brush up on the definition and requirements sur- rounding a "multipurpose loan" given the nature of renovation lending, as well as the changes made to HMDA that took effect January 1, 2018. Any HMDA reporting lender should have a clearly written policy or proce- dure for how they will report a renovation loan that is made to a consumer for the purposes of both purchasing a home and providing funds to also improve it. Banks should also compare internal records of the renovation lending against the bank's HMDA data for accuracy—especially in terms of the number of loans and dollar amounts made in the renovation space. In addition to keeping accurate reporting data on all residential mortgage lending, it is also a good idea to maintain accurate and detailed internal records of activ- ity for these specific loan types that backs up and gives further color to the bank's HMDA data. This is especially important for banks subject to CRA. For example, banks should retain any records from HUD showing the total number of FHA 203(k) loan endorsements issued to the insti- tution. If there is a comprehensive plan for affordable housing or housing value stabilization issued by the bank's local government, the bank should see if its renova- tion lending activity is conducive to meeting the needs in that plan and be prepared to share that with their examiner. By having more granular details in terms of data, banks are better equipped to explain the overall impact their renovation lending has had in LMI communities and thus enable them to better present it as part of the bank's overall "CRA Story." Finally, from a sales and marketing perspective, banks must not only be compliant, but creative as well. Banks must think outside the box as to how they may be able to help eligible consumers with the hurdles they may face as on any other product. For example, they should explore whether there are eligible sources of affordable and reputable down payment assistance in their area for LMI borrowers. Since lack of down payment remains one of the constant barriers to home- ownership, the higher loan-to- values available to borrowers through these products can help. Given these programs' flexibil- ity for sources of down payment, if banks can find sources of af- fordable assistance, such as grants, low-interest second mortgages, and forgivable second mortgages ("silent" or "soft" seconds), then the bank may have a more com- pelling and exciting story to tell. Banks should check the different agency guidelines online for more details of eligible sources of down payment. As always, they must also make sure to retain all mar- keting records, especially of any "renovation lending" campaigns that might run to consumers in economically distressed areas. With the massive shortage of affordable single-family housing facing many communities across the country, having a renovation lending program is a good way to modernize older housing stock in a bank's market. It gives potential homebuyers more options when home shopping with the added benefits of the FHA Limited 203(k) in Opportunity Zones. It presents lenders with not only additional lending volume and possible CRA consideration, but also the chance to play a truly meaningful role in the revitaliza- tion of America's most economi- cally distressed areas. . BRUCE SCHULTZ is VP, CRA Officer, for Gateway First Bank in Jenks, Oklahoma, where he oversees the execution of the bank's CRA strategy to meet the financial needs of the communities it serves. With over 22 years' experience primarily in residential mortgage/ community banking, Schultz is a nationally recognized speaker on operational mortgage compliance. Schultz is a graduate of Oklahoma State University and resides in Tulsa with his wife and children. Opportunity Zones present mortgage bankers with the unique opportunity of both increasing their own production volume and assisting in the reinvigoration of economically distressed communities through single-family renovation or rehabilitation lending programs.