Pub. 7 2017-2018 Issue 6

O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S - H E L P I N G C O L O R A D A N S R E A L I Z E D R E A M S May • June 2018 11 B ankers are widely familiar with the regulatory requirement acronym CRA, which stands for Community Reinvestment Act. For those reading who may not know, the requirement stems from a 1970’s era law enacted to direct banks to reinvest capital into the local communities across all the areas and demographics of their branch foot-print or “service-area” as they are commonly referred to by regulators. Banks are then asked to create their own “report card” to show they are serv- ing their communities equally in terms of credit and also doing things to promote “community development”. Larger banks are also required to make investments as well as loans over the $1.22 billion thresh - old in asset size. Like many of our banking regulations and requirements CRA contains both a “letter of the law” and “spirit of the law” with the broad intent to prohibit discrim- inatory practices and stimulate positive social and economic impact through banks activity. In the law there is a power to prohibit a bank from expanding or ac- quiring if they fail the test. For banks this consequence could hamper or damage growth and shareholder value. Although the regulators have a subjective test, the primary focus falls on the bank to prove they met the technical data requirements to meet the “letter of the law”. This takes both time and considerable effort for a bank to prepare. Many do so manually to this day. As a result there is not much energy or time left to focus on the “spirit of the law.” Beyond prohibiting overt discrimina- tion, disparate impact and other socially damaging lending or investing practices, the intent of the law is for banks to partner with their local communities and make a positive difference in the lives of all their citizens. In this way the phrase “all ships rise on a rising tide”, applies very directly to what animates the spirit of CRA. To approach the CRA requirement from this philosophical point of view would be a triple win; for banks, regula- tors and community members. The very idea that a bank could create a “Com- munity of Opportunity” rather than just checking the box could provide a mean- ingful shift. In Jonathan Rose’s book, The Well-Tempered City, he further unpacks Community of Opportunity to its Latin Roots to provide a historical perspective on the definition • Com = “with or together” • Munus = “gift” • Op = “in the direction of” • Portus = “port or harbor” From the roots definition a “Commu - nity of Opportunity means “The gift of Community Reinvestment Act BY MICHAEL THOMAS, VICE PRESIDENT, MULTIFAMILY & HEALTHCARE,GERSHMAN MORTGAGE (DENVER OFFICE) being together and returning home from our ventures to a safe harbor.” In my current work, I get to help communities as an affordable housing and development lender. In that sense creating a safe harbor has a special significance in a Low Income Housing Tax Credit or “LIHTC” development. When I reflect back onmy previous career as a commercial banker, I’m remiss to report I didn’t think much about CRA in my business lending. Generally CRA was a requirement handled in the back office that I completed quarterly trainings on. At times I provided small business education seminars or led and partic- ipated in community events benefiting non-profits and other bank supported charities. Now I wonder how much more of a direct positive impact I could have had if I spent just 5-10% of my prospecting time specifically seeking high impact CRA lending opportuni- ties? As a small business lender there are often naturally occurring CRA loans made, particularly by commu- nity banks. While that is good how much more could be done if all of a bank’s loan officers (not just those in community development) sought CRA loan or investment opportunities? What difference would that make in their communities? Today as a non-bank, government insured HUD lender, I partner with banks on affordable housing devel- opment lending and in other ways. It’s clear to me that we all have the ability and the responsibility to create a meaningful, positive social impact in the communities we live and work in. The best way to make a difference is by setting our intention on doing so. Perhaps with this mental shift one day banks can come to see CRA not just as another test that is required, but a test that allows them and their communities to be inspired. n Michael Thomas is a Vice President of Multifamily & Healthcare at Gershman Mortgage (Denver Office) GershmanMortgage is a 60+ year old, family owned HUD; FHA insured commercial lender and servicer.