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Solar Loans – what is the tipping point?

Solar Loans – what is the tipping point?

There is a lot of news flow on investor interest on raising funds for solar loans, but not much attention has been paid to – what constitutes an ‘attractive interest rate’ to make homeowners ‘jump’ to make that solar investment. Supply Side First lets focus on the resource side; the benchmark for raising ‘low cost’ institutional funds lies will be […]
Long-term financing for solar is possible and critical for supporting continued industry growth

Long-term financing for solar is possible and critical for supporting continued industry growth

Installed solar capacity in the United States exceeded 10 GW for the third year in a row in 2018, and the pace of growth is expected to continue. The first quarter of 2019 was the strongest in the history of the U.S. solar market, according to a recent report from Solar Energy Industries Association (SEIA) and Wood Mackenzie Power & Renewables. Yet inefficient and costly project financing inhibits many solar developers from tapping into the market’s true potential.
How Energy Efficiency, Led by Solar Energy, is Transforming US Building Practices

How Energy Efficiency, Led by Solar Energy, is Transforming US Building Practices

Solar continues to drive the energy efficient market transformation that has gripped the nation over the last 10 years. Some would argue that Barack Obama should be credited with helping to focus our construction industry on energy efficiency.
Picking Up PACE After Federal Guidance

Picking Up PACE After Federal Guidance

A promising energy efficiency program could get closer to reaching its massive potential after a federal policy tweak that tempers lenders’ concerns to allow more homeowners to cash in.
Bank of America’s Energy Efficiency Finance Program Rewards Innovators

Bank of America’s Energy Efficiency Finance Program Rewards Innovators

The Bank of America Energy Efficiency Finance Program has provided low-interest loans and grants to community development financial institutions (CDFIs) to increase access to energy efficiency retrofits in low- to moderate-income communities. The program was launched in 2011. Bank of America is issuing loans to the CDFIs at an interest rate of 1 percent over 10 years with a total […]
Recently Passed Legislation to Open Up PACE Financing in Illinois

Recently Passed Legislation to Open Up PACE Financing in Illinois

Illinois could get a PACE program for financing energy efficiency and renewable energy in commercial, industrial and multi-family buildings if the governor signs a bill passed overwhelmingly by the state legislature last month.
Funding Green Building Projects

Funding Green Building Projects

Green Energy Money (GEM) Financial Solutions to Value & Power a Sustainable Future When you are looking at building a custom high performance home the loan process is different than a typical mortgage loan. The appraiser needs to be able to quantify the value of the systems in a NATiVE home (rainwater, solar PV, etc.) and know how to properly value and apply a “green premium” that recognizes the value of high-performance systems on the appraisal. They also have to adhere to current appraisal and underwriting guidelines. We have found that engaging with a trusted lender early in the process, who is qualified to evaluate these homes and has competent, trained and certified appraisers on their team has proven to greatly benefit our clients. To clear the air, NATiVE has no financial benefit to the lender our customers choose to use. We’re suggesting that the lender needs to be a part of the Integrated Design team and involved early in the process to help you ensure that all of the planning and loan structuring of the home is financially viable and the quantified green appraisal facilitated by a qualified, certified appraiser is a major component to achieving the best loan terms and approval. The benefit is greater when working with a lender who is well versed and experienced in high-performance building as well as green lending! How is GEM able to get funding and appraisals for green features on homes that other lenders overlook? First of all, you have to realize that green homes are typically a high-quality asset; often these homes are saving as much energy as they are using. You have to be able to think outside the box and you must have a certain level of understanding and education to accomplish this; which takes time, experience and a willingness and commitment to go beyond conventional lending criteria. Many owners and industry professionals do not understand that this process cannot be quantified by cost, but is dictated by how much you save on energy reduction. The only way to accomplish this is to utilize third-party energy building science experts that verify and quantify (scientifically) how much energy the building will save annually. Through this process we can quantify value and send data to appraisers that they can verify to make their case for a premium green value. How do you recognize value in solar, rainwater and high efficiency measures? We require certified, competent, appraisers to facilitate our high-performance projects that are skilled in the art of green building and construction. This factor is overlooked by many lenders; often they try to compare apples to oranges. This is called a paired sales analysis. It’s not necessary, and often not possible, to find exact matches or comparable green properties in a neighborhood that have the same upgrades, i.e., solar, geothermal, rainwater, etc. The major differential here is how well the home is performing and how much energy they are saving compared to the properties that are similar to the subject property. Another important consideration is the comparison of custom homes vs. production built homes, that may be older and often high-energy consumption. This is often due to the lack of comparable sales for custom homes since they aren’t typically sold and recorded on the MLS (multiple listing service;) the owner has purchased the land and built a green home, but there is no records for these types of homes. Education is paramount in green lending and so many lenders and appraisers aren’t educated or competent and believe they are. This is simply because they truly don’t understand the principle of how these buildings are saving and generating energy; and how high-performance homes are a lower risk than conventional homes due to durability and lower operating expenses and deferred maintenance. Both appraisers and underwriters need to be able to have access to the right data and be able to interpret this information correctly. What are some of the challenges we face in a market slow to recognize the value of solar, rainwater etc? The good news is the consumer market and exceptional builders like Native are adapting quickly and demand is growing for high efficiency, net zero homes. Especially in the Austin region. We are finding more comparable properties in the MLS daily and proving every day that green building is cost efficient, and these homes sell faster and for a higher premium. This is making it easier for properties to appraise. The other news and the biggest challenge we face is educating lenders and appraisers and teaching them how to properly quantify and value these transactions. Green Energy Money (GEM) is rolling out a lender platform this year and already has an education program for appraisers in place. GEM’s Lender Network’s rates are competitive. All of the GEM Network lenders we work with offer competitive loan programs and we strive to place clients with the right lender and best rate available in the market. Sometimes we find the lowest rate isn’t the best fit for some borrowers if the lender can not approve the loan due to qualifying challenges. Our team and strategic alliances all strive to offer the best terms available. Saving people money is something we are passionate about; which is what high-performance building accomplishes. GEM’s process is simple. We have created a seamless process that simplifies the green appraisal valuation and loan structure process. We find that it’s helpful to be included in the very beginning of the process during design phase. Many times architects and owners want a certain type of building envelope, like earth berm, etc., which can be a challenge for appraisals. It’s useful to know how you are going to structure the loan and project in the first place. Often, we have to find solutions for design challenges or certain property tax exemptions which can be problematic. Native gains nothing from GEM other than being able to have a smooth process to funding a project. Native, like most builders, needs trusted partners to support their clients with end-to-end, market-based solutions. You need a team that has one main goal and vision that affords clients an outstanding experience and product. We go the extra mile because we love what we do and are passionate about making a difference. We believe high-performance building offers the best economic and environmental solutions for our clients and the planet. We are grateful and excited to be able to work with trusted builders like Native who consistently build an exceptional high-performance product! Learn more about Teresa Lopez here
Residential Solar and Uniform Commercial Code: A Primer on Solar-Financiers’ Rights in a Foreclosure

Residential Solar and Uniform Commercial Code: A Primer on Solar-Financiers’ Rights in a Foreclosure

U.S. residential solar PV has been growing at a breakneck pace. Annual installations have increased nearly five-fold in the past five years and, in 2014, surpassed annual commercial capacity additions for the first time in the history of PV market tracking. Additionally, nearly a third of the entire solar industry's workforce — comprising over 174,000 employees — works in residential solar.
PACE – the 5 trillion dollar credit line

PACE – the 5 trillion dollar credit line

...What it will do for America and for you. Property Assessed Clean Energy (PACE) lending is taking off, quietly, like a stealth economic weapon in the war against infrastructure obsolescence.  The potential impact of this still little known program could change the course of American history.  The numbers are staggering. Overtly blessed by President Obama in an address last August, the financing tool is expanding rapidly across the United States.  According to PACEnation.us, 23 states and the District of Columbia have already enacted PACE programs (or are about to), and many more are debating them currently.  To understand why it could turbo launch the US economy like the New Deal during the depression of ’29, let’s review some of the most critical guidelines of typical PACE programs: a property owner can borrow up to 15% of the assessed value of the property to make energy efficiency, transportation efficiency, water efficiency, or structure-critical improvements (i.e., seismic retrofits in CA).   Those improvements are paid for by privately-funded bonds which are repaid via a payment schedule added to the property tax assessment and transferable to the next property owner. Note the important “15%” immediate credit line allowance provided for any qualifying construction project(s).  Suddenly, a million dollar property has $150,000 of improvement capital made available to it, just for the asking, so long as there is a 20% equity position by the owner (that qualifier varies slightly from state to state, but is a common standard).  In California, the law now allows the program to be used for new construction, yet a new program expansion from the state that started it all. So, given the impressive speed with which states are instituting and developing their respective programs, and the federal endorsement of the building improvement financing method, it means that we can look forward with high probability to PACE being a nation-wide program by the end of the decade or so. Each of the 50 states will run their own variation of the financing product, but current trend indicates that the ratio of “line of credit to property value” will not vary greatly. Here comes the fun: The total value of the US residential market, according to the US government, and corroborated by our friends at Zillow, is approximately $25,000,000,000,000.  That’s $25 trillion.   Now let’s throw in the assessed value of the US commercial market ($6,750,000,000,000, or $6.75 trillion per Prudential), and you now have a rough cumulative value of US real estate: $31.75 trillion, give or take a few hundred billion. If 15% of that value were in fact converted into a line of credit progressively over the next decade or two (not all properties will qualify at the same time because of equity and numerous other reasons), the potential value we are speaking of injecting into the US construction economy is approximately $4,750,000,000,000... $4.75 trillion. That sum represents more than 25% of the anticipated US Gross Domestic Product(GDP) of 2015.  Why is that relevant?  Because the GDP “only” grows by about 2% per year.  So, the impact of this enormous credit pool on the US economy will be explosive, even if reaches only a fraction of its potential .  According to a recent study by a member of the National Bureau of Economic Research & UCSD faculty, reported by Business Insider, “each dollar of infrastructure spending increases the GSP (Gross State Product) by at least two dollars.”  So one can argue that the impact of the PACE line of credit on GNP is potentially up to ...wait for it…$9.5 trillion! Back to the present:  The billions have officially begun accumulating. This month, HERO/Renovate America, the leading PACE financier of residential efficiency projects in California, announced that since its inception some 4 years ago, it has completed $1,000,000,000 ($1billion) in PACE financing.     Not everyone believes PACE is not without its detractors.  The question of whether the cost of infrastructure improvements will result in equivalent property value increases makes some real estate folks nervous.  More significantly, some in the banking industry point to the first position which a PACE debt takes over federally guaranteed residential mortgage loans.   At one point in 2010, federal regulators halted residential PACE for that reason.  State and local governments, aided by advocates, sued and won.  Yet the underlying question of the program’s impact on the lending industry’s operating structure remains unresolved, and to quote a U. of Colorado Law Review article “PACE has been promoted as a national strategy for financing residential energy improvements without accurately representing the program to homeowners and without a careful analysis of the long-term sustainability of the program.”   While there is some new encouraging market data that assuage those concerns, they remain issues for some policy makers and financial institutions.   Why is the US government promoting it? From the numbers perused above, this could be a dream for the US economy, assuming that the tax-based debt load doesn’t eventually negatively impact the real estate market.  So the first reason the US government promotes PACE is that it is really good for our economy. The second reason is that the US government wants a rapid infrastructure upgrade in the US landscape.  We need more clean energy, more efficient use of carbon fuels, and more water solutions, faster.  With the US tax credit on the chopping block for solar in a year, creative solutions for financing all sorts of infrastructure upgrades are urgent.  As the nation faces an urgent need to modernize and rebuild public infrastructure, reducing the load on it becomes one of the government priorities. PACE makes it easy for property owners to contribute to that goal by reducing their external demands on fossil energy and water. The third reason is that the banks will not finance those improvements.  Property upgrades are hard to fund, unless one has a significant amount of equity.  So creating a mechanism that says “Want to put a new efficient roof on, and water-wise landscaping, as well as motion sensor light switches?... Do it! We have the money for you right now!” is bound to move things along at unprecedented speed.   What does it mean to you in the industry? If you are anywhere near an industry that touches building envelope efficiency, clean transportation infrastructure, clean electricity production and storage, water efficiency, or natural disaster impact abatement at the building level, you should do high five’s at every Monday morning strategy meeting.  Per my interview with Cisco Devries, originator of the PACE concept, it is the American contractor who is the front line of PACE marketing.  Now, the contractor can propose significant building improvements when performing a routine repair, because he/she can get you financing to get the whole job done.  It’s a massive empowerment, distributed to a very large number of construction professionals.   Electrical contractors alone number 70,000 in the US ( per FirstResearch.com); each one could eventually offer financing for i.e., solar installation as well as a long list of other energy efficiency upgrades including that electric car charger.  That sort of marketing power, extended to all other trades like roofing and plumbing, will spread the word fast.  Think of how this might transform nascent industries that have not yet spread their wings because of financing and adoption rate issues, like grey-water, micro desalination, site detoxification, bathroom fixtures, efficiency roofing, LED lighting, power back-up battery systems, and on and on.   What does it mean for Wall Street? Wall Street is going to love… no…adore PACE, because it adds up to growth that is guaranteed by the US government.  In September, California-based PACE provider RenewFinancial securitized their first $50million dollars in PACE loans. This is a preview of what is to come.  Uncle Sam has approved a mechanism that protects creditors, but somebody is still going to need to put up that capital, in billion dollar chunks.  So Wall Street is licking its chops thinking about the future business this all means.  In addition to funding the loans themselves, which will only return a modest yield, there will be significant high-yield opportunities from the drafting power of a financial instrument that size:  funding new companies, taking them public, managing pension funds from the successful industry groups, advising on the different opportunities that will emerge from this thick and rising icing on the construction industry cake.   Scientific American named PACE one of the top 20 ideas that can change the world.  Granted, the acronym is still far from being a household word.  But in the span of a single generation, PACE could well have a revolutionary impact on our economy, and on our adoption of technologically driven infrastructure.  As I write this, a friend and neighbor has offered to show me a brochure offering investment in a PACE fund.  He isn’t totally certain how it works, but the guy that’s recommending it is “some Harvard MBA”… I can hear the distant,growing rumbling of a rocket engine in countdown.   Other articles by Philippe Hartley: Solar Financing for Non-Profits; Out of the Woods?A Chat with Cisco Devries, PACE Funding's Godfather Solar Rapid Shutdown - Will it shut you out?
AES To Securitize $100 Million in U.S. Solar Power Projects

AES To Securitize $100 Million in U.S. Solar Power Projects

AES Corp., a U.S. power producer with operations in 18 countries, is planning to securitize its first portfolio of solar projects.