The document provides comments to the Federal Housing Finance Agency (FHFA) regarding its Advance Notice of Proposed Rulemaking on Property Assisted Clean Energy (PACE) lending programs. It argues that Fannie Mae and Freddie Mac should not purchase loans on properties subject to PACE super-liens, which have priority over mortgage liens. PACE programs threaten the stability and liquidity of the secondary mortgage market and are inconsistent with the GSEs' mission due to the increased risk of default. While energy efficiency is worthwhile, PACE financing is not an appropriate method and lacks basic consumer protections. The document responds to questions posed by the FHFA on whether restrictions on GSE dealings with PACE programs are necessary.
This document summarizes the debate around regulating the payday lending industry in the United States. It outlines the Consumer Financial Protection Bureau's proposed regulations to curb predatory lending practices and establish consumer protections. It also discusses opposing legislation, the Consumer Protection and Choice Act, which would weaken the CFPB's authority. The document examines arguments from supporters of reform who see payday loans as debt traps, as well as counterarguments from opponents who believe regulation limits access to credit. Case studies from states with differing regulatory approaches are also considered.
DFA Federal Deposit Insurance Reform - PaperStephanie Bohn
Dr. Scott Hein, Professor of Finance and faculty director of the Texas Tech School of Banking, presented his research at the fourth annual Federal Reserve System/ Conference of State Bank Supervisors Community Banking in the 21st Century Research and Policy Conference at the Federal Reserve Bank of St. Louis.
This PowerPoint is a discussion of options for financing clean energy. It describes financing processes, and outlines specific options related to on-bill financing structures, 3rd party structures and commercial lending structures. It was originally presented to RE-AMP, an organization of environmental advocates operating primarily in the Midwest.
This document summarizes a study comparing the performance of loans from a community lending program (Community Advantage Program) to subprime loans for similar borrowers. The study found that for borrowers with similar risk characteristics, subprime loans, adjustable-rate mortgages, loans with prepayment penalties, and loans originated by brokers had significantly higher risks of serious delinquency than loans from the community lending program. This suggests that reckless lending practices, rather than simply riskier borrowers, played a central role in the subprime crisis. While the crisis caused beliefs that homeownership is not suitable for low-income households, the study concludes that responsible, community-focused lending can still make homeownership a viable asset-building option for
This presentation gives a summary of the National Mortgage Settlement Act, including key provisions of the Act and how it has benefited affected borrowers.
200 club presentation dec 2010 financial reformGo2Training
The document summarizes a webinar discussing opportunities under the 112th Congress to influence new policy regarding the mortgage industry. It outlines goals to amend Dodd-Frank regulations regarding loan originator compensation, appraisal independence, the merged TILA/RESPA disclosure form, and liability provisions. It also discusses providing comments to the Fed regarding its interim final rule implementing Dodd-Frank appraisal reforms and its loan originator compensation rule.
This document summarizes the debate around regulating the payday lending industry in the United States. It outlines the Consumer Financial Protection Bureau's proposed regulations to curb predatory lending practices and establish consumer protections. It also discusses opposing legislation, the Consumer Protection and Choice Act, which would weaken the CFPB's authority. The document examines arguments from supporters of reform who see payday loans as debt traps, as well as counterarguments from opponents who believe regulation limits access to credit. Case studies from states with differing regulatory approaches are also considered.
DFA Federal Deposit Insurance Reform - PaperStephanie Bohn
Dr. Scott Hein, Professor of Finance and faculty director of the Texas Tech School of Banking, presented his research at the fourth annual Federal Reserve System/ Conference of State Bank Supervisors Community Banking in the 21st Century Research and Policy Conference at the Federal Reserve Bank of St. Louis.
This PowerPoint is a discussion of options for financing clean energy. It describes financing processes, and outlines specific options related to on-bill financing structures, 3rd party structures and commercial lending structures. It was originally presented to RE-AMP, an organization of environmental advocates operating primarily in the Midwest.
This document summarizes a study comparing the performance of loans from a community lending program (Community Advantage Program) to subprime loans for similar borrowers. The study found that for borrowers with similar risk characteristics, subprime loans, adjustable-rate mortgages, loans with prepayment penalties, and loans originated by brokers had significantly higher risks of serious delinquency than loans from the community lending program. This suggests that reckless lending practices, rather than simply riskier borrowers, played a central role in the subprime crisis. While the crisis caused beliefs that homeownership is not suitable for low-income households, the study concludes that responsible, community-focused lending can still make homeownership a viable asset-building option for
This presentation gives a summary of the National Mortgage Settlement Act, including key provisions of the Act and how it has benefited affected borrowers.
200 club presentation dec 2010 financial reformGo2Training
The document summarizes a webinar discussing opportunities under the 112th Congress to influence new policy regarding the mortgage industry. It outlines goals to amend Dodd-Frank regulations regarding loan originator compensation, appraisal independence, the merged TILA/RESPA disclosure form, and liability provisions. It also discusses providing comments to the Fed regarding its interim final rule implementing Dodd-Frank appraisal reforms and its loan originator compensation rule.
The document discusses new mortgage disclosure requirements under TILA-RESPA that will take effect on August 1st. The new requirements consolidate four previous disclosures into two new forms: the Loan Estimate and Closing Disclosure. While the new disclosures are intended to be easier for consumers to understand, they present difficulties for lenders who must now use two separate systems to comply with the new rules or the previous rules depending on the type of mortgage. The new requirements will also require lenders and settlement companies to cooperate earlier in the process when providing the Closing Disclosure.
The Federal Housing Finance Agency, Fannie Mae, and Freddie Mac announced changes to the Home Affordable Refinance Program (HARP) to make it accessible to more borrowers. The changes include eliminating certain risk-based fees, removing the loan-to-value ceiling, waiving some lender representations and warranties, eliminating the need for new appraisals in some cases, and extending the program through 2013. The goal of the changes is to provide more refinancing opportunities for eligible borrowers with mortgages owned or guaranteed by Fannie Mae and Freddie Mac.
This document discusses ethics, fair lending practices, and mortgage fraud. It covers ethical lending standards, predatory lending practices like kickbacks, and how lenders can combat mortgage fraud by looking for red flags and filing suspicious activity reports. It also discusses the CFPB complaint process for consumers and the CFPB's enforcement actions against financial institutions for violations of consumer protection laws.
The document discusses amendments being considered for the Consumer Financial Protection Agency (CFPA) in the Wall Street Reform and Consumer Protection Act of 2009. It summarizes amendments that would undermine the CFPA by eliminating it or weakening its powers, as well as amendments and provisions that would strengthen the CFPA and consumer protections. It argues that a strong CFPA is needed to restore balanced regulation and prevent another financial crisis by addressing predatory financial products and practices.
AllRegs History of CFPB and the Mortgage IndustryAllRegs
Do you work for a mortgage company, real estate company, or financial services organization? Are you having trouble understanding what the Consumer Finance Protection Bureau is and what it does? Are you having trouble explaining CFPB to your staff? View this colorful summary of the History of the CFPB and the Mortgage Industry to learn more!
Debt settlement companies promise to reduce consumer debt by negotiating with creditors for a fee. However, this comes with significant risks, as consumers must default on debts and see if the company can successfully negotiate reductions. The document discusses the debt settlement process, fees charged, and risks involved, such as damaged credit, collection actions, and lawsuits. It notes studies finding low program completion rates and that most consumers do not get a majority of debts settled. Despite recent reforms banning upfront fees, clients still face many risks from defaulting on debts in debt settlement programs.
The four Cs of underwriting are:
1. Character - The borrower's credit history
2. Capacity - The borrower's ability to repay based on income
3. Collateral - The value of the property securing the loan
4. Capital - The borrower's available funds, typically a down payment
The document outlines key proposals and recommendations for financial regulatory reform contained in reports released by the Obama Administration in June and August 2009. It summarizes the causes of the financial crisis, including inadequate consumer and investor protections, insufficient oversight of financial firms, poor oversight of markets, and lack of mechanisms for resolving failed firms. The proposals aim to establish a new Consumer Financial Protection Agency, increase oversight of financial firms and markets, implement new rules for winding down failed firms, and enhance international coordination of standards. If enacted, the reforms are intended to protect consumers, investors, and taxpayers and prevent future crises.
The document discusses the benefits of FHA loans including lower down payments of as low as 3%, higher qualifying ratios, leniency on derogatory credit, non-occupying co-borrowers allowed, financing of upfront mortgage insurance, and assumability. It also lists FHA required disclosures and provides resources for homeowners facing foreclosure or scams.
Financing Programs for Energy Efficiency: Utility RolesHarcourtBrownEF
This document discusses various approaches to designing energy efficiency financing programs. It notes that traditional rebates may not be the most cost-effective approach and that leveraging private capital through financing could be more effective if designed well. It then outlines different models for financing programs, including who provides the capital, types of credit enhancements, the role of utilities, and examples of programs using these approaches. The key is finding flexible capital that can be used to make loans more accessible while managing risks.
The New CFPB, New Simplified Disclosures & How Your Credit Union Will Be Affe...NAFCU Services Corporation
The document summarizes how the new Consumer Financial Protection Bureau (CFPB) will affect credit unions. It establishes the CFPB as an independent agency overseen by a single director. It will require simplified and standardized disclosures for financial products and services to make them easier for consumers to understand and compare. Credit unions will have to comply with new rules around disclosures, consumer rights to financial information, use of consumer reports, and mortgage lending practices. The CFPB aims to make consumer financial transactions more transparent.
The document summarizes the key points of the President's plan to help homeowners, including: 1) Allowing refinancing for homeowners current on their mortgages to save $3,000 annually on average; 2) Establishing a Homeowner Bill of Rights with strong federal mortgage servicing standards; 3) Piloting a program to convert foreclosed homes into rental properties to stabilize prices and neighborhoods. The plan also calls for expanding eligibility for forbearance and loan modification programs to help more struggling homeowners.
The document provides an overview of the mortgage industry, including the different types of mortgage companies, loan products, and eligibility requirements. It summarizes the key aspects of conventional loans, FHA loans, VA loans, VHDA loans, USDA loans, and niche programs. The document aims to help readers gain a basic understanding of home mortgages and how to work with a mortgage lender to find the best financing options.
This document provides a report on the future of Fannie Mae and Freddie Mac following their placement into government conservatorship in 2008 during the financial crisis. The report finds that:
1) Fannie Mae and Freddie Mac's structure as government-sponsored enterprises (GSEs) is inappropriate and provides limited public benefits.
2) Their public missions of expanding homeownership can be achieved through private sector involvement in the mortgage market without needing a GSE structure.
3) Privatization of Fannie Mae and Freddie Mac through a holding company model, similar to how Sallie Mae was privatized, is the optimal long-term solution that addresses systemic risk concerns while transitioning them to private
This document summarizes requests regarding federal policy concerns with regulations implementing the Dodd-Frank Act. It seeks to: 1) ensure regulations do not require fixed loan origination prices; 2) preserve consumer options to pay origination fees upfront or through interest rates; 3) amend ability-to-repay and safe harbor provisions to protect borrowers; 4) ensure fair liability standards for mortgage originators; 5) allow mortgage professionals to order appraisals as directed by the Federal Reserve; and 6) establish standards for appraisal portability.
PACE style energy retrofit liens may be a great way for homeowners to add solar or other energy items to their home AS LONG AS they know what they're getting. Difficulty selling or refinancing their home may be just some of the unanticipated consequences of a HERO Program.
PACE financing allows property owners to pay for energy efficiency, renewable energy, and water efficiency projects through additional assessments on their property tax bill over 5-20 years. The contractor receives funds upfront to complete the retrofit project. Then the property owner pays back the funds as a special assessment on their property taxes. This overcomes challenges like lack of access to financing, limited internal capital budgets, and uncertainty around payback periods by spreading costs over many years and securing repayment through a senior lien on the property.
The document discusses new mortgage disclosure requirements under TILA-RESPA that will take effect on August 1st. The new requirements consolidate four previous disclosures into two new forms: the Loan Estimate and Closing Disclosure. While the new disclosures are intended to be easier for consumers to understand, they present difficulties for lenders who must now use two separate systems to comply with the new rules or the previous rules depending on the type of mortgage. The new requirements will also require lenders and settlement companies to cooperate earlier in the process when providing the Closing Disclosure.
The Federal Housing Finance Agency, Fannie Mae, and Freddie Mac announced changes to the Home Affordable Refinance Program (HARP) to make it accessible to more borrowers. The changes include eliminating certain risk-based fees, removing the loan-to-value ceiling, waiving some lender representations and warranties, eliminating the need for new appraisals in some cases, and extending the program through 2013. The goal of the changes is to provide more refinancing opportunities for eligible borrowers with mortgages owned or guaranteed by Fannie Mae and Freddie Mac.
This document discusses ethics, fair lending practices, and mortgage fraud. It covers ethical lending standards, predatory lending practices like kickbacks, and how lenders can combat mortgage fraud by looking for red flags and filing suspicious activity reports. It also discusses the CFPB complaint process for consumers and the CFPB's enforcement actions against financial institutions for violations of consumer protection laws.
The document discusses amendments being considered for the Consumer Financial Protection Agency (CFPA) in the Wall Street Reform and Consumer Protection Act of 2009. It summarizes amendments that would undermine the CFPA by eliminating it or weakening its powers, as well as amendments and provisions that would strengthen the CFPA and consumer protections. It argues that a strong CFPA is needed to restore balanced regulation and prevent another financial crisis by addressing predatory financial products and practices.
AllRegs History of CFPB and the Mortgage IndustryAllRegs
Do you work for a mortgage company, real estate company, or financial services organization? Are you having trouble understanding what the Consumer Finance Protection Bureau is and what it does? Are you having trouble explaining CFPB to your staff? View this colorful summary of the History of the CFPB and the Mortgage Industry to learn more!
Debt settlement companies promise to reduce consumer debt by negotiating with creditors for a fee. However, this comes with significant risks, as consumers must default on debts and see if the company can successfully negotiate reductions. The document discusses the debt settlement process, fees charged, and risks involved, such as damaged credit, collection actions, and lawsuits. It notes studies finding low program completion rates and that most consumers do not get a majority of debts settled. Despite recent reforms banning upfront fees, clients still face many risks from defaulting on debts in debt settlement programs.
The four Cs of underwriting are:
1. Character - The borrower's credit history
2. Capacity - The borrower's ability to repay based on income
3. Collateral - The value of the property securing the loan
4. Capital - The borrower's available funds, typically a down payment
The document outlines key proposals and recommendations for financial regulatory reform contained in reports released by the Obama Administration in June and August 2009. It summarizes the causes of the financial crisis, including inadequate consumer and investor protections, insufficient oversight of financial firms, poor oversight of markets, and lack of mechanisms for resolving failed firms. The proposals aim to establish a new Consumer Financial Protection Agency, increase oversight of financial firms and markets, implement new rules for winding down failed firms, and enhance international coordination of standards. If enacted, the reforms are intended to protect consumers, investors, and taxpayers and prevent future crises.
The document discusses the benefits of FHA loans including lower down payments of as low as 3%, higher qualifying ratios, leniency on derogatory credit, non-occupying co-borrowers allowed, financing of upfront mortgage insurance, and assumability. It also lists FHA required disclosures and provides resources for homeowners facing foreclosure or scams.
Financing Programs for Energy Efficiency: Utility RolesHarcourtBrownEF
This document discusses various approaches to designing energy efficiency financing programs. It notes that traditional rebates may not be the most cost-effective approach and that leveraging private capital through financing could be more effective if designed well. It then outlines different models for financing programs, including who provides the capital, types of credit enhancements, the role of utilities, and examples of programs using these approaches. The key is finding flexible capital that can be used to make loans more accessible while managing risks.
The New CFPB, New Simplified Disclosures & How Your Credit Union Will Be Affe...NAFCU Services Corporation
The document summarizes how the new Consumer Financial Protection Bureau (CFPB) will affect credit unions. It establishes the CFPB as an independent agency overseen by a single director. It will require simplified and standardized disclosures for financial products and services to make them easier for consumers to understand and compare. Credit unions will have to comply with new rules around disclosures, consumer rights to financial information, use of consumer reports, and mortgage lending practices. The CFPB aims to make consumer financial transactions more transparent.
The document summarizes the key points of the President's plan to help homeowners, including: 1) Allowing refinancing for homeowners current on their mortgages to save $3,000 annually on average; 2) Establishing a Homeowner Bill of Rights with strong federal mortgage servicing standards; 3) Piloting a program to convert foreclosed homes into rental properties to stabilize prices and neighborhoods. The plan also calls for expanding eligibility for forbearance and loan modification programs to help more struggling homeowners.
The document provides an overview of the mortgage industry, including the different types of mortgage companies, loan products, and eligibility requirements. It summarizes the key aspects of conventional loans, FHA loans, VA loans, VHDA loans, USDA loans, and niche programs. The document aims to help readers gain a basic understanding of home mortgages and how to work with a mortgage lender to find the best financing options.
This document provides a report on the future of Fannie Mae and Freddie Mac following their placement into government conservatorship in 2008 during the financial crisis. The report finds that:
1) Fannie Mae and Freddie Mac's structure as government-sponsored enterprises (GSEs) is inappropriate and provides limited public benefits.
2) Their public missions of expanding homeownership can be achieved through private sector involvement in the mortgage market without needing a GSE structure.
3) Privatization of Fannie Mae and Freddie Mac through a holding company model, similar to how Sallie Mae was privatized, is the optimal long-term solution that addresses systemic risk concerns while transitioning them to private
This document summarizes requests regarding federal policy concerns with regulations implementing the Dodd-Frank Act. It seeks to: 1) ensure regulations do not require fixed loan origination prices; 2) preserve consumer options to pay origination fees upfront or through interest rates; 3) amend ability-to-repay and safe harbor provisions to protect borrowers; 4) ensure fair liability standards for mortgage originators; 5) allow mortgage professionals to order appraisals as directed by the Federal Reserve; and 6) establish standards for appraisal portability.
PACE style energy retrofit liens may be a great way for homeowners to add solar or other energy items to their home AS LONG AS they know what they're getting. Difficulty selling or refinancing their home may be just some of the unanticipated consequences of a HERO Program.
PACE financing allows property owners to pay for energy efficiency, renewable energy, and water efficiency projects through additional assessments on their property tax bill over 5-20 years. The contractor receives funds upfront to complete the retrofit project. Then the property owner pays back the funds as a special assessment on their property taxes. This overcomes challenges like lack of access to financing, limited internal capital budgets, and uncertainty around payback periods by spreading costs over many years and securing repayment through a senior lien on the property.
This document provides an overview of payday lending regulations and practices. It discusses how regulations vary significantly between states and countries. It also examines the different ways interest rates on payday loans are calculated, loan processes, borrower demographics, arguments around the sustainability of high interest payday loans, and recent regulatory actions.
The document provides information about an advanced mortgage training seminar presented by Rob Ross and Jaime Young on November 11th, 2010 from 11:30am to 1:30pm. The seminar outline includes discussions on loan types, property flipping guidelines, FHA loans, 203K renovation loans, VA loans, portfolio loans, appraisal procedures, mortgage insurance, and condos. Contact information is provided for Rob Ross and the CEO of Potomac Mortgage Group, Ed Dean.
9 Mortgage MarketsCHAPTER OBJECTIVESThe specific objectives of.docxblondellchancy
9 Mortgage Markets
CHAPTER OBJECTIVES
The specific objectives of this chapter are to:
· ▪ provide a background on mortgages,
· ▪ describe the common types of residential mortgages,
· ▪ explain the valuation and risk of mortgages,
· ▪ explain mortgage-backend securities, and
· ▪ explain how mortgage problems led to the 2008- 2009 credit crisis.
9-1 BACKGROUND ON MORTGAGES
A mortgage is a form of debt created to finance investment in real estate. The debt is secured by the property, so if the property owner does not meet the payment obligations, the creditor can seize the property. Financial institutions such as savings institutions and mortgage companies serve as intermediaries by originating mortgages. They consider mortgage applications and assess the creditworthiness of the applicants.
The mortgage represents the difference between the down payment and the value to be paid for the property. The mortgage contract specifies the mortgage rate, the maturity, and the collateral that is backing the loan. The originator charges an origination fee when providing a mortgage. In addition, if it uses its own funds to finance the property, it will earn profit from the difference between the mortgage rate that it charges and the rate that it paid to obtain the funds. Most mortgages have a maturity of 30 years, but 15-year maturities are also available.
9-1a How Mortgage Markets Facilitate the Flow of Funds
WEB
www.mbaa.org
News regarding the mortgage markets.
The means by which mortgage markets facilitate the flow of funds are illustrated in Exhibit 9.1. Financial intermediaries originate mortgages and finance purchases of homes. The financial intermediaries that originate mortgages obtain their funding from household deposits. They also obtain funds by selling some of the mortgages that they originate directly to institutional investors in the secondary market. These funds are then used to finance more purchases of homes, condominiums, and commercial property. Overall, mortgage markets allow households and corporations to increase their purchases of homes, condominiums, and commercial property and thereby finance economic growth.
Institutional Use of Mortgage Markets Mortgage companies, savings institutions, and commercial banks originate mortgages. Mortgage companies tend to sell their mortgages in the secondary market, although they may continue to process payments for the mortgages that they originated. Thus their income is generated from origination and processing fees, and not from financing the mortgages over a long-term period. Savings institutions and commercial banks commonly originate residential mortgages. Commercial banks also originate mortgages for corporations that purchase commercial property. Savings institutions and commercial banks typically use funds received from household deposits to provide mortgage financing. However, they also sell some of their mortgages in the secondary market.
Exhibit 9.1 How Mortgage Markets Facilitate t ...
Risky Borrowers Or Risky Mortgages 10.2.2008TriCaucus
This document summarizes a study comparing the performance of loans originated through a community lending program (CAP) versus subprime loans for borrowers with similar risk characteristics. The study found that for similar borrowers, subprime loans, adjustable-rate mortgages, loans with prepayment penalties, and loans originated by brokers had significantly higher risks of delinquency than loans from the community lending program. This suggests that reckless underwriting practices by lenders, rather than borrower risk alone, played a central role in the subprime crisis. When done responsibly, the study concludes, low-income homeownership can still be a sustainable path to asset-building.
Risky Borrowers Or Risky Mortgages 10.2.2008TriCaucus
This document summarizes a study comparing the performance of loans originated through a community lending program (CAP) versus subprime loans for borrowers with similar risk characteristics. The study found that for similar borrowers, subprime loans, adjustable-rate mortgages, loans with prepayment penalties, and loans originated by brokers had significantly higher risks of delinquency than loans from the community lending program. This suggests that reckless underwriting practices by lenders, rather than borrower risk alone, played a central role in the subprime crisis. When done responsibly, the study concludes, low-income homeownership can still be a sustainable path to asset-building.
CFPB Finalizes Ability-to-Repay Rule for Mortgage LendersPatton Boggs LLP
The CFPB finalized rules on ability-to-repay requirements for mortgage lenders, including defining a "Qualified Mortgage." Lenders must verify borrowers' income, assets, debts and be able to repay both principal and interest long-term. Loans meeting certain standards including debt-to-income ratios below 43% qualify as Qualified Mortgages, for which lenders are presumed compliant. The CFPB also proposed exemptions for smaller lenders and nonprofit programs. The rules seek to prevent risky lending and take effect January 2014.
Financing Policy Webinar with Congressman Israel and Matthew Brown - Matthew ...Alliance To Save Energy
The document discusses various models for financing clean energy projects. It describes programs that provide unsecured loans for home energy upgrades through partnerships with contractors. Larger secured loans may also be available. Loan terms typically range from 2-10 years. Interest rates are usually between 0-8.99% with some programs offering lower rates. Credit enhancements like loss reserves help mitigate risks. Successful programs tend to be simple, accessible through contractors, and have flexible financing options tailored to different project sizes and sectors.
The document discusses how to navigate banking relationships during troubled economic times. It provides an overview of the shifts in the banking industry due to the financial crisis, including increased consolidation and losses from mortgage-backed securities and credit default swaps. It then offers advice on evaluating your bank's health, communicating proactively with your banker, understanding your loan terms and knowing when to seek other options.
Energy efficient mortgages have been around for decades but largely have notbeen taken advantage of. In the past few years the secondary mortgage markethas streamlined the underwriting process for the energy mortgage product. Fannie Mae has made the process seamless for the lender and the rater. Yet despite these infrastructure improvements and rising energy costs the demand for the product has not increased.
The document discusses a program to stimulate bank lending and small business growth through the use of UCC insurance. It notes that commercial loan delinquencies, charge-offs, and losses grew significantly from 2006 to 2009, representing billions in losses. Industry experts estimate that 30% of future defaulted loans, representing $31 billion, will involve documentation errors that cause the lender to lose lien priority and collateral. UCC insurance could help avoid $25 billion of these losses by protecting lien perfection and priority. The document recommends legislation requiring independent verification of security interests over $2 million and urges use of UCC insurance to manage commercial loan risk and maximize recoveries.
The document discusses a program to stimulate bank lending and small business growth through the use of UCC insurance. It notes that commercial loan delinquencies, charge-offs, and losses grew significantly from 2006 to 2009, representing billions in losses. Industry experts estimate that 30% of defaulted loans over the next three years, representing $31.11 billion, will have documentation errors that cause the lender to lose lien priority and collateral. UCC insurance could help avoid $24.88 billion in losses by protecting lien perfection and priority. The document suggests legislative language requiring third-party verification of security interests over $2 million to improve loan quality and encourage lending.
Car-title loans are expensive loans secured by the title to a borrower's vehicle. They often involve single balloon payments that are difficult for borrowers to repay in one month due to high fees. This typically forces borrowers into a cycle of repeatedly refinancing the loan, keeping them in long-term debt. Analysis of loan data found that borrowers paid back over three times the amount borrowed on average. The loans disproportionately impact low-income individuals, as the payment structures are not affordable based on typical incomes and expenses. The threats of high fees, repossession, and inability to get out of the debt cycle can have serious financial and personal consequences for vulnerable borrowers.
The document presents an investment thesis for establishing a fund that will build and manage a diversified portfolio of peer-to-peer (P2P) loans. It discusses the emergence and growth of P2P lending, provides an overview of the major P2P lending platforms and their business models, examines the market growth potential for P2P lending in the UK and US, models expected returns from investing in P2P loans, reviews key risks, and concludes there is significant opportunity to create a P2P lending fund that can achieve £1 billion in assets under management by 2020.
This document summarizes the key events that led to the subprime mortgage crisis and current financial crisis. It describes how subprime mortgages were originated and then securitized into mortgage-backed securities (MBS) and collateralized debt obligations (CDOs). These securities became highly complex and opaque. When the housing market declined, many subprime borrowers defaulted, causing the value of MBS and CDOs to plummet. This impaired the balance sheets of financial institutions and froze credit markets. The document outlines various experts' proposals to remedy the crisis, including government purchases of toxic assets, capital injections into banks, and establishing funds to remove bad assets from banks and resolve insolvent institutions.
This document discusses credit risk management for financial institutions. It covers topics such as how financial institutions transform household savings into loans, the importance of credit risk management, credit quality problems over time, analyzing different types of loans including real estate, consumer, small business and commercial loans. It discusses tools for credit analysis like the five C's of credit, cash flow analysis, ratio analysis, Altman's Z-score model and Moody's expected default frequency model. The document is from a textbook on financial institutions by Dr. Muath Asmar from An-Najah National University.
A wrap-up of our 2021 legislative session with special guests California state Senator Melissa Melendez and U.S. Chamber Western Region V.P. Jennings Immel
The document provides details of a Southwest California Legislative Council meeting agenda and minutes. The agenda lists legislative items to be discussed, including bills related to taxation, healthcare, the environment, and other topics. During the meeting, council members discussed and took positions on the legislative items, with most bills receiving an "oppose" position.
This bill places a statewide general obligation bond measure on the 2022 ballot to fund kindergarten through community college facilities. If approved by voters, it would provide $12 billion for new construction, modernization, career technical education, and charter school facilities. It establishes new programs, modifies matching requirements, expands costs covered by state funds, and increases the maximum bonding capacity for districts to qualify as financially hardships. The Southwest California Legislative Council recommends supporting this bill.
This document provides the agenda and minutes for a meeting of the Southwest California Legislative Council. The agenda includes a chair report, approval of previous meeting minutes, presentations from guest speakers on topics like the French Valley Airport tower and redistricting, and reviews of several proposed bills. Key items discussed in the minutes include a presentation from the District Attorney on prosecuting fentanyl drug dealers and legislation around bail reform and limiting the use of gang enhancements. The council took positions supporting or opposing various bills.
The document is a meeting agenda for the Southwest California Legislative Council on March 15, 2021. The agenda includes a call to order, roll call, chair report, approval of minutes, and consideration of 14 legislative items. The council will also receive announcements and adjourn, with the next meeting scheduled for April 19, 2021. The document provides details on the agenda items to be discussed at the upcoming meeting of the Southwest California Legislative Council.
The Southwest California Legislative Council provides advocacy for businesses in Southwest Riverside County. It was formed in 2005 as a coalition of four local chambers of commerce. The Council monitors thousands of bills introduced in the California legislature each year and takes positions to support legislation that benefits businesses and oppose legislation that harms businesses. It publishes annual vote records analyzing how local legislators voted on the Council's priority bills. The document provides details on the Council's 2021 strategic initiatives, bills it is tracking this year, and its 2020 vote record analysis.
The document summarizes demographic and housing market statistics for the Murrieta/Temecula region. It states that 70% of residents are young families or professionals, 40% have an associate degree or higher, and incomes are higher than county and state averages. Year-to-date single family home sales and median prices are up 11% and 15% respectively compared to the previous year. It also notes various challenges on the horizon such as the end of eviction moratoriums and forbearance programs and the potential impacts on inventory, foreclosures, and rental availability.
This bill proposes to prohibit business entities from making direct contributions to political campaigns and create a public financing system to fund elections instead. It argues this is needed to reduce corporate influence over politicians and ensure elected officials represent constituents rather than corporate interests. However, others argue direct contributions are already strictly limited by law and this bill does not address the largest campaign contributors like unions and tribes, only targeting corporations. It may also violate the Citizens United ruling that prohibits restricting independent political expenditures by corporations and unions.
The Southwest California Legislative Council voted to OPPOSE ACA 1, a proposed amendment to the California Constitution that would lower the voter threshold for local governments to finance affordable housing, public facilities, and infrastructure projects from two-thirds to 55%. The resolution would amend various sections of the state Constitution relating to local finance.
The housing market in Southwest California had a strong year in 2020 despite the pandemic shutdown. Sales volume was the highest since 2010 with over 11,000 homes sold. Median and average home prices reached new peaks, with 259 homes selling for over $1 million, up from 174 in 2019. However, inventory remains very low with only 598 homes currently for sale, the lowest level since 2012. The low inventory coupled with continued high demand is expected to sustain price appreciation in 2021, though new policies and economic impacts from the pandemic could influence the market.
The document provides an overview of housing market trends in Wildomar, California and the surrounding region. It discusses Wildomar demographics and economic data, and notes that 80% of Wildomar residents are homeowners. Housing sales data for Wildomar and nearby cities is presented, showing increases in median home prices between 7-15% from 2019 to 2020. The forecast predicts home sales will decline in 2020 but rebound in 2021, while prices continue a slow rise. The impacts of COVID-19 on remote working and its potential effects on the housing market are also summarized.
The meeting agenda summarizes an upcoming Southwest California Legislative Council meeting to be held on September 21, 2020 at the Realtor House in Murrieta. The agenda includes a chair report, approval of previous meeting minutes, a 2020 legislative report, and a guest speaker - Senator Melissa Melendez. The council will discuss 2020 strategic initiatives and legislative items including ballot propositions, the 2020 legislative session progress to date, and announcements from speakers and chambers.
The document provides an overview of demographic, housing market, and economic trends in Lake Elsinore, California. It notes that Lake Elsinore has experienced population growth and shifts towards younger residents in recent years. Housing demand has remained strong, with home sales down slightly in 2020 but prices continuing to rise. The forecast predicts a bounce back in home sales in 2021 while prices continue a slow climb. Remote work is changing housing preferences, with more demand for homes further from urban centers that allow larger spaces for both living and working. Retail and office spaces struggling due to COVID-19 may be converted to residential units. The document also briefly discusses state policies from the 2020 legislative session.
A comprehensive summary of the housing market in Southwest California where we're enjoying the strongest Seller's market in years in July. Sales posted their 2nd highest month in the past decade, up 17% over June and up 11% over last July. Median prices continued to climb as well, advancing 6% year-to-date. We are now measuring inventory of homes for sale in weeks, not months.
Need help figuring out what to do with the 12 propositions you'll face on your November ballot? Every year the Southwest California legislative Council assigns our members a measure to research and present. The Council debates the issue based on what impact it will have on our business community and recommends a position. As always, we encourage voters to do their own research and to that end we have a much more extensive document available with all the arguments pro and con, what your vote means, and follow the money.
Every year the Southwest California Legislative Council evaluates statewide ballot propositions to determine which might fall within the purview of our strategic initiatives and impact our business members. Council members select a proposition to research and deliver a presentation to the group followed by discussion and a vote to recommend a YES vote, a NO vote, or NO POSITION. Here are the group's recommendation on the 12 measures you'll see on our November ballot.
Detailed information courtesy of BallotPedia.
This bill proposes several measures to provide relief for homeowners, tenants, and consumers during the COVID-19 emergency period and 180 days after. It would prohibit lenders from initiating foreclosures or evictions during this time. It would require lenders to provide up to 180 days of forbearance on mortgage payments for borrowers experiencing financial hardship, and to extend that period if hardship continues. It would also place restrictions on lenders related to foreclosure proceedings, recording notices of default, and misleading borrowers about forbearance options. Opponents argue it imposes overly burdensome obligations on lenders and could jeopardize future credit availability.
The Southwest California Legislative Council met on May 18, 2020 to discuss several legislative items and initiatives. The meeting agenda included a chair report, approval of previous meeting minutes, and discussion of 10 legislative bills. The bills covered topics such as unemployment benefits, property assessments, worker status, community emissions reduction programs, and the California Environmental Quality Act. The council also heard from a speaker about available COVID-19 business relief programs before adjourning and announcing their next meeting on June 15.
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Deed 3754 S Honeysuckle Mesa AZ 85212 owner Shawn Freeman - Pamela Brown Nota...
Nar mba fhfa comment letter
1. American Bankers Association
Community Mortgage Banking Project
Consumer Mortgage Coalition
Housing Policy Council
Independent Community Bankers of America
Mortgage Bankers Association
March 26, 2011
Federal Housing Finance Agency
Alfred M. Pollard, General Counsel
Federal Housing Finance Agency
Eighth Floor, 400 Seventh Street SW.
Washington, D.C. 20024
RegComments@fhfa.gov
Re: Advance Notice of Proposed Rulemaking
Mortgage Assets Affected by PACE Programs
(RIN) 2590–AA53
Dear Mr. Pollard:
The undersigned trade associations appreciate the opportunity to submit comments to the
Federal Housing Finance Agency (FHFA) in its Advance Notice of Proposed
Rulemaking (ANPR) on Property Assisted Clean Energy (PACE) lending programs.
FHFA asks whether its restrictions and conditions on PACE lending should be
maintained, changed, or eliminated, and whether other restrictions or conditions should
be imposed. We believe the GSEs should not purchase loans on properties that are, or
could become, subject to a PACE super-lien, a lien that has priority over the mortgage
lien. The GSEs were created to promote stability and liquidity in the secondary mortgage
market. PACE super liens, as described below, threaten stability and liquidity, and are
therefore inconsistent with the GSEs’ mission and are inappropriate for them to purchase.
While energy efficiency is a worthy goal, PACE super-liens threaten the lien position on
which mortgage lenders, servicers, and investors rely, and are disruptive to mortgage
markets. PACE financing is not an appropriate method for financing energy efficiency
improvements for homes.
Background on PACE loans
PACE loans, sometimes called Energy Loan Tax Assessment Programs (ELTAPs), are a
relatively new type of financing for energy efficiency retrofits, commonly solar panels.
2. 2
Under a PACE program, a municipality issues bonds, then lends the proceeds to
homeowners and businesses for energy retrofit purposes. Property owners repay the
PACE loans over a number of years, typically 15 or 20 years. They are commonly not
prepayable.
The unusual feature of PACE loans is that the municipality collects loan payments
through its tax assessments. Like unpaid property taxes, an unpaid PACE loan results in
a lien on the property, and, in most states, the PACE lien has priority over a mortgage
lien, even over a first mortgage lien that predated the PACE loan.
PACE loans lack basic consumer protections. PACE loans depend on the lien on the
property, and therefore do not require a demonstration of the borrower’s ability to repay
the loan.
The PACE super-lien priority over a mortgage lien significantly harms the interest of the
GSEs and other mortgage investors. PACE programs can cause the amount of debt
secured by a home to exceed the property value. Underwater mortgages are at much
higher risk of default than loans with low loan-to-value (LTV) ratios. PACE loans can
increase mortgage default rates.
If the case of a foreclosure on the mortgage loan, the mortgage lienholder would need to
pay past due amounts on the PACE loan, and would owe, or a subsequent purchaser
would owe, the future PACE loan payments. The existence of a PACE loan with priority
over the mortgage significantly and immediately reduces the value of the existing
mortgage loan. When a mortgage loan defaults, the existence of a PACE super-lien
increases the severity of loss to the mortgage holder.
Fannie Mae and Freddie Mac together own or guarantee over $5 trillion in mortgage
loans. The fact that PACE loans can increase both the rate of mortgage defaults and the
severity of losses on defaulted mortgage loans could cause the GSEs enormous losses.
Residential mortgage loans are very commonly made using the GSEs’ uniform security
instrument, even when lenders do not intend to sell the loan to a GSE. The uniform
security instruments make clear that if a new new lien with priority over the mortgage
lien is created, the borrower must promptly discharge or subordinate the new lien, absent
the mortgage lender’s consent. Put another way, PACE liens with a priority over the
mortgage lien can be a default on the mortgage obligation. Some PACE loan programs
do not require advance notice to the borrower that the PACE loan may be a mortgage
default.
PACE loan programs do not require that the loan proceeds be used in a cost-effective
manner. Under some programs, the PACE loan is shorter than the expected life of the
energy product, but that does not mean the loan and product are cost effective. The
amount of energy savings from one piece of equipment varies from building to building.
The cost of electricity varies by location and sometimes by time of day. The cost of fuel
can vary seasonally. The amount of electricity that air conditioners use varies by indoor
3. 3
and outdoor temperatures, and it varies during rainfall. A solar panel in sunny regions
will produce different savings than one in cloudy areas, or in a location near tall buildings
or trees. Its sun exposure varies by the angle at which it is installed. Whether an
individual retrofit would be cost-effective would require an engineering analysis, but
PACE programs do not require engineering analyses.
In June 2009, FHFA wrote a letter1
to the American Association of Residential Mortgage
Regulators, the Conference of State Bank Supervisors, the National Association of Credit
Union Supervisors, the National Conference of State Legislatures, and the National
Governors Association. This letter discussed FHFA’s concerns with PACE programs.
FHFA stated that a “central risk is that these loans create an additional potential for the
loss of a home through a tax sale or foreclosure[.]” FHFA noted that these loans increase
homeowner debt burdens, and thereby run counter to the goals of foreclosure prevention
programs. FHFA noted a number of predatory lending concerns with PACE programs:
The loans may be originated by unregulated parties such as home remodeling
firms.
The loans do not adequately take into account whether there is sufficient equity in
the property to support the mortgage and the energy loans.
The loan terms and structure represent serious risks to borrowers, including terms
that may be longer than the useful life of the energy improvements, and
significant points and fees on the loans, such that the borrower may never realize
the energy cost savings.
Marketing targeted to those who would not qualify for a loan in the amount of the
energy loan plus the mortgage loan. FHFA was “particularly concerned” by
marketing materials for one program targeted at borrowers who may not qualify
for a lower-interest home equity loan through a private lender.
Instances of interest rates above market rates.
Diminished ability to refinance a mortgage or to sell a property encumbered by
the energy lien.
A great potential for fraud. FHFA noted one program in which payments for the
improvements are made directly to the contractor, permitting unscrupulous
contractors to be paid before the work is satisfactorily completed. FHFA noted
another program in which the installer can seek a 20-year loan for a solar energy
system that the homeowner may or may not have authorized.
On September 18, 2009, Fannie Mae issued a Lender Letter stating, “Fannie Mae is
reviewing its underwriting guidelines to determine appropriate requirements in
jurisdictions that have enacted legislation establishing ELTAPs. Until such Lender Letter
guidelines are issued, lenders should treat ELTAP payments as a special assessment in
underwriting a borrower[.]”2
On May 5, 2010, Fannie Mae and Freddie Mac both issued
letters. Fannie Mae’s letter said, “The terms of the Fannie Mae/Freddie Mac Uniform
Security Instruments prohibit loans that have senior lien status to a mortgage.”3
Freddie
Mac’s letter said, “The purpose of this Industry Letter is to remind Seller/Servicers that
1
The letter is available here.
2
Fannie Mae Lender Letter 07-2009, September 18, 2009.
3
Fannie Mae Lender Letter 2010-06.
4. 4
an energy-related lien may not be senior to any Mortgage delivered to Freddie Mac.
Seller/Servicers should determine whether a state or locality in which they originate
mortgages has an energy loan program, and whether a first priority lien is permitted.”4
Both GSEs indicated they would provide additional guidance in the future.
On July 6, 2010, FHFA released a statement:
FHFA urged state and local governments to reconsider these programs and
continues to call for a pause in such programs so concerns can be addressed. First
liens for such loans represent a key alteration of traditional mortgage lending
practice. They present significant risk to lenders and secondary market entities,
may alter valuations for mortgage-backed securities and are not essential for
successful programs to spur energy conservation.
While the first lien position offered in most PACE programs minimizes credit risk
for investors funding the programs, it alters traditional lending priorities.
Underwriting for PACE programs results in collateral-based lending rather than
lending based upon ability-to-pay, the absence of Truth-in-Lending Act and other
consumer protections, and uncertainty as to whether the home improvements
actually produce meaningful reductions in energy consumption.
In that statement, FHFA directed Fannie Mae and Freddie Mac to waive the prior lien
restrictions in their uniform security instruments for preexisting PACE loans. FHFA also
directed the GSEs, including the Federal Home Loan Banks, to address PACE programs
that create first liens, and to adjust loan-to-value ratios to reflect the maximum
permissible PACE loan amount available, among other things.5
Also on July 6, 2010, the Office of the Comptroller of the Currency (OCC) released
supervisory guidance, noting FHFA’s release. The OCC’s guidance stated:
This [PACE] lien infringement raises significant safety and soundness concerns
that mortgage lenders and investors must consider. . . . National bank lenders
should take steps to mitigate exposures and protect collateral positions. . . . For
new mortgage and home equity loans, mitigating steps may include:
• Reducing real estate loan-to-value limits to reflect maximum advance
rates of PACE programs to the extent they create super-senior lien
priorities; and
• Considering the maximum amount of the PACE payment portion of the
annual tax assessment in the institution’s analysis of the borrower’s
financial capacity.
In addition, banks that invest in mortgage backed securities or that are considering
the purchase of pools of mortgage loans should consider the impact of tax-
assessed energy advances on their asset valuations. Finally, the OCC expects
investment banking units to be cognizant of the impact of this type of funding
4
Freddie Mac Industry Letter, May 5, 2010.
5
FHFA Statement on Certain Energy Retrofit Loan Programs, July 6, 2010.
5. 5
vehicle on their respective institutions and on the mortgage market overall when
making any decisions regarding associated bond underwriting. . . . Programs that
fail to comply with these expectations pose significant regulatory and safety and
soundness concerns.6
On August 31, 2010, Fannie Mae and Freddie Mac both announced that, effective for
loans originated on or after July 6, 2010, they would no longer purchase loans on
properties with PACE obligations unless the terms of the PACE program do not permit
priority over first mortgages.7
On February 28, 2011, FHFA’s General Counsel wrote a letter to the GSEs, under
FHFA’s authority as conservator, directing them to continue to refrain from purchasing
loans secured by properties with first-lien PACE obligations.8
In a challenge to the FHFA’s position, on August 26, 2011, the U.S. District Court for the
Northern District of California held that “[s]ubstantive rule-making is not appropriately
deemed action pursuant to the FHFA’s conservatorship authority. The FHFA’s policy-
making with respect to PACE programs does not involve succeeding to the rights or
powers of the Enterprises, taking over their assets, collecting money due or operating
their business.” The court did not agree with FHFA that it acted under its authority over
significantly undercapitalized GSEs. The court found that FHFA’s authority over
significantly undercapitalized GSEs is available only if FHFA finds the GSEs to be
significantly undercapitalized, and that FHFA has not made such a finding. The court
found that conservatorship may be based on several grounds, so “it is not possible to infer
from Fannie Mae or Freddie Mac’s conservatorship that they were classified as
significantly undercapitalized.” The court found that the FHFA’s policy on PACE
programs was required to be developed through notice-and-comment rulemaking under
the Administrative Procedure Act,9
and the present rulemaking is the result of that
decision.
FHFA has appealed the District Court’s order, and reserves the right to withdraw the
rulemaking should it prevail on appeal.
Background on GSE Conservatorships and FHFA’s Authority
FHFA is conservator for Fannie Mae and for Freddie Mac. FHFA has the unenviable
task of trying to minimize taxpayer losses resulting from the failure of these two GSEs.
By statute, the GSEs were permitted to operate with considerably lower capital levels
than private financial institutions. The GSEs were regulated by agencies with very
limited regulatory powers and resources. Their implicit federal backing permitted them
6
OCC Supervisory Guidance OCC 2010-25, July 6, 2010.
7
Fannie Mae Announcement SEL-2010-12, August 31, 2010; Freddie Mac Bulletin 2010-20, August 31,
2010..
8
FHFA letter to GSEs, February 28, 2011.
9
The court’s decision is here.
6. 6
access to funding at lower cost than any fully private entity, and they grew largely
unchecked. Their mismanaged credit risk, coupled with their lack of a capital cushion,
led to their conservatorships in September 2008.
These are among the largest financial institution failures in history. The GSEs’ failures
dwarf the savings and loan crisis of the 1980s. The Resolution Trust Corporation (RTC)
had the task of minimizing taxpayer losses from the savings and loan crisis. The RTC
estimated that the total realized and expected losses, as of December 31, 1995, for
resolving 747 failed institutions was $87.9 billion.10
The losses at the two GSEs to date
far surpasses that, and likely will continue to accrue for years. On October 27, 2011,
FHFA projected that through 2014, the GSEs would together draw $220 billion to $311
billion from the U.S. Treasury.11
This is more than twice, and possibly more than three
times, the cost of the entire savings and loan crisis.
As FHFA stated in its Strategic Plan in February 2012:
The two companies have received more than $180 billion in taxpayer support. . . .
[I]t is clear that the draws the companies have taken from the Treasury are so
large they cannot be repaid under any foreseeable scenarios.12
The GSEs are severely undercapitalized. The threat of losses from PACE loans is a
pronounced risk to the Treasury and to U.S. taxpayers. FHFA has the duty to limit GSE
losses, on PACE properties and otherwise.
The District Court for the Northern District of California found FHFA did not have
authority to prohibit the GSEs from purchasing loans on properties subject to PACE
super-liens. That question appears irrelevant because the GSEs individually could simply
elect not to purchase such loans. It is not apparent, if FHFA were required to go through
a formal rulemaking to prohibit the GSEs from purchasing super-lien PACE loans, why it
would not likewise be required to go through a rulemaking to permit the GSEs to
purchase them. The District Court found that FHFA does not have authority to act as it
did because FHFA has not found the GSEs are significantly undercapitalized. This is an
elevation of form over substance. It assumes that there is some room to question whether
Fannie Mae and Freddie Mac are significantly undercapitalized, which is unrealistic. It
also ignores FHFA’s many other authorities to require the GSEs to operate safely and
soundly.
There can be no serious question that FHFA has authority to prohibit the GSEs from
purchasing loans on properties that are or could become subject to a PACE super-lien,
just as it has authority to prohibit the GSEs from making any unsafe and unsound
purchases. That is one of the purposes Congress created FHFA. We agree with the
10
See General Accounting Office Report, Resolution Trust Corporation’s 1995 and 1994 Financial
Statements, p. 10 (July 1996).
11
Projections of the Enterprises’ Financial Performance, see p. 7.
12
A Strategic Plan for Enterprise Conservatorships: The Next Chapter in a Story that Needs an Ending,
February 21, 2012.
7. 7
discussion in the ANPR about FHFA’s authority. FHFA has authority to require the
GSEs to operate safely and soundly regardless of the conservatorships. The fact of the
enormous losses the GSEs have incurred in conservatorship emphasizes the need for the
PACE prohibition.
Questions FHFA Poses
In this advance notice of proposed rulemaking, FHFA poses several questions that we
address below.
Question 1: Are conditions and restrictions relating to FHFA-regulated entities’ dealings
in mortgages on properties participating in PACE programs necessary? If so, what
specific conditions and/or restrictions may be appropriate?
FHFA’s restrictions relating to PACE liens, where PACE liens have priority over
a first mortgage lien, are essential. This is essential for the U.S. taxpayers, for the
GSEs, for the stability of the entire mortgage market, and for consumers who
would otherwise be subjected to unregulated predatory lending practices that put
them at risk of losing their homes.
Question 2: How does the lien-priming feature of first-lien PACE obligations affect the
financial risks borne by holders of mortgages affected by PACE obligations or investors
in mortgage-backed securities based on such mortgages? To the extent that the lien-
priming feature of first-lien PACE obligations increases any financial risk borne by
holders of mortgages affected by PACE obligations or investors in mortgage-backed
securities based on such mortgages, how and at what cost could such parties insulate
themselves from such increased risk?
The lien-priming feature of first-lien PACE obligations greatly increases the
credit exposure of mortgage-backed securities, to mortgage investors, taxpayers,
and mortgage markets themselves. Mortgage investors rely on their lien position.
Losing it unknowingly, in exchange for nothing, substantially harms the value of
mortgage investments. The GSEs so dominate the mortgage market today that
losses from super-lien loans would be heavily concentrated in two GSEs. They
have no capital cushion, so all their losses flow directly to the U.S. Treasury.
PACE programs could be improved so they would not disrupt the mortgage
market’s need to rely on lien positions. The programs could provide that a default
on a PACE loan, or on a mortgage loan on the same property, requires
acceleration of the PACE loan and its subordination to any mortgage lien that
predated the PACE lien.
Question 3: How does the lien-priming feature of first-lien PACE obligations affect any
financial risk that is borne by holders of mortgages affected by PACE obligations or
investors in mortgage-backed securities based on such mortgages and that relates to any
of the following:
8. 8
The total amount of debt secured by the subject property relative to the value of
the subject property (i.e., Combined Loan to Value Ratio for the property or other
measures of leverage);
The amount of funds available to pay for energy-related home-improvement
projects after the subtraction of administrative fees or any other program expenses
charged or deducted before funds become available to pay for an actual PACE-
funded project (FHFA understands such fees and expenses can consume up to
10% or more of the funds a borrower could be obligated to repay under some
PACE programs);
The timing and nature of advancements in energy-efficiency technology;
The timing and nature of changes in potential homebuyers’ preferences regarding
particular kinds of energy-efficiency projects;
The timing, direction, and magnitude of changes in energy prices; and,
The timing, direction, and magnitude of changes of property values, including the
possibility of downward adjustments in value?
The lien-priming feature of first-lien PACE obligations increases the financial risk
to holders of related mortgages and MBS by doing all of the following:
Increasing the combined loan-to-value ratio (CLTV). CLTV is a primary
determinant of the value, and default risk, of a mortgage loan. PACENow
has posted a template comment letter to FHFA for this rulemaking that
asserts, “PACE financed improvements allow homeowners to hedge
themselves against fuel price spikes and rising fuel costs over time. These
factors lessen, if not eliminate, the safety and soundness risk than the
FHFA has asserted.”13
This is unsupported. There is ample evidence that
LTV and CLTV ratios are closely correlated with mortgage loan defaults,
meaning that PACE liens increase mortgage default risk. PACE-financed
improvements may reduce a homeowner’s overall expenses in some cases,
but that is not a requirement. In some cases, the PACE financing
increases the homeowner’s net expenses and that may increase the risk of
a mortgage default. Further, PACENow assumes energy prices rise over
time. The price of natural gas has fallen since the advent of extracting it
from shale rock. As The Wall Street Journal reports, “U.S. energy
companies are pumping so much natural gas out of the ground that prices
are plummeting, and the cheap gas isn't likely to evaporate anytime soon.
Natural-gas prices fell 5.7% Wednesday to their lowest level in over two
years—good news for people who use gas to heat homes and for
companies that use it to power factories. . . . Despite a 32% drop in prices
last year, onshore production rose 10%, and it is expected to rise another
4% this year, according to Barclays Capital. As a result, prices are
expected to remain low for at least the next couple years. . . . Earlier this
week, Bank of America Merrill Lynch said gas prices could drop below $2
in the fall, a level unseen since 2002. Four years ago, it sold for around
$9. . . . The current glut partly stems from the U.S. energy industry’s
13
The template is available here.
9. 9
success with new exploration techniques—notably hydraulic fracturing of
shale formations, or fracking. Shale formations full of gas keep turning up
across the country, storage reservoirs are close to full and companies are
now starting to try to export the excess gas.”14
Fees and expenses of ten percent on an energy loan risk making the entire
retrofit purchase a net financial loss to homeowners. That would defeat
the entire purpose of the project, from the consumer’s perspective. From
the investor’s perspective, it would increase the risk of default because the
mortgage loan was underwritten without regard to the energy loan or its
fees, and the energy loan may put the consumer in a worse financial
condition, making default on one or both loans more likely.
The timing in energy-efficiency technology advancements is unknown,
but it can happen rapidly. For this reason, PACE loans with terms of 15 to
20 years may be financially unsound investments. Early in the life of a
PACE loan, the technology used in a retrofit application may become
obsolete, but the PACE loan would remain because it is not prepayable.
As technology advances, consumers’ preferences will change. A solar
panel that seemed attractive at first but that became obsolete will hurt
property liquidity and value, both because the property has an undesirable
and obsolete solar panel, and because the PACE lien would still be
outstanding. Energy retrofit loans with such long terms seem predatory,
absent a well-documented determination that the project will result in
financial gain to the homeowner. Consumers themselves are not able to
make such determinations without an experienced engineer.
Energy prices are hard to predict. They can depend on international and
domestic politics and technology advances.
Property values are subject to fluctuation. They can increase or, especially
lately, decrease. PACE loans increase the risk of default when property
values are declining because CLTV is a strong predictor of default.
Question 4: To the extent that the lien-priming feature of first-lien PACE obligations
increases any financial risk that is borne by holders of mortgages affected by PACE
obligations or investors in mortgage-backed securities based on such mortgages and that
relates to any of the following, how and at what cost could such parties insulate
themselves from that increase in risk:
The total amount of debt secured by the subject property relative to the value of
the subject property (i.e., Combined Loan to Value Ratio for the property or other
measures of leverage);
The amount of funds available to pay for energy-related home-improvement
projects after the subtraction of administrative fees or any other programs
expenses charged deducted before funds become available to pay for an actual
PACE funded project (FHFA understands such fees and expenses can consume up
to 10% or more of the funds a borrower could be obligated to repay under some
14
Russell Gold, Daniel Gilbert, and Ryan Dezember, Glut Hits Natural Gas Prices, The Wall Street
10. 10
PACE programs);
The timing and nature of advancements in energy-efficiency technology;
The timing and nature of changes in potential homebuyer preferences regarding
particular kinds of energy-efficiency projects;
The timing, direction, and magnitude of changes in energy prices; and,
The timing, direction, and magnitude of changes of property values, including the
possibility of downward adjustments in value?
Mortgage investors will simply avoid investing in loans on properties that are, or
could become, encumbered, by PACE liens.
Under the uniform security instrument, when a lien prior to mortgage is created,
the mortgage lender can demand that the borrower promptly discharge it:
Borrower shall promptly discharge any lien which has priority over this
Security Instrument unless Borrower: (a) agrees in writing to the payment of
the obligation secured by the lien in a manner acceptable to Lender, but only
so long as Borrower is performing such agreement; (b) contests the lien in
good faith by, or defends against enforcement of the lien in, legal proceedings
which in Lender’s opinion operate to prevent the enforcement of the lien
while those proceedings are pending, but only until such proceedings are
concluded; or (c) secures from the holder of the lien an agreement satisfactory
to Lender subordinating the lien to this Security Instrument. If Lender
determines that any part of the Property is subject to a lien which can attain
priority over this Security Instrument, Lender may give Borrower a notice
identifying the lien. Within 10 days of the date on which that notice is given,
Borrower shall satisfy the lien or take one or more of the actions set forth
above in this Section 4.
A borrower’s failure to comply with the security instrument is a mortgage default.
Question 5: What alternatives to first-lien PACE loans (e.g., self-financing, bank
financing, leasing, contractor financing, utility company “on-bill” financing, grants, and
other government benefits) are available for financing home-improvement projects
relating to energy efficiency? On what terms? Which do and which do not share the
lien-priming feature of first-lien PACE obligations? What are the relative advantages and
disadvantages of each, from the perspective of (i) The current and any future homeowner-
borrower, (ii) the holder of an interest in any mortgage on the subject property, and (iii)
the environment?
From the perspective of the current and future homeowner, and of any mortgage
investor, most alternatives would be better than super-lien PACE loans.
For homeowners with the means to finance an energy retrofit project without a
PACE loan, the alternative financing likely would have a lower cost and much
more flexibility, such as a shorter term and the ability to prepay the loan. A
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shorter term and the ability to prepay the loan would both reduce its cost. This
flexibility would also permit the homeowner to sell the property without
diminishing the sales price to reflect the outstanding PACE loan. Such loan
products, such as § 203(k) insured home improvement loans from the Federal
Housing Administration, Energy Efficient Mortgages, and general home
improvement loans are more suitable to these ends.
PACE loans, then, are directed at those who cannot qualify for non-PACE
financing. These are the borrowers for whom PACE loans would be the most
dangerous. A borrower of limited means should not be put into a PACE loan
because PACE loans are made without regard to the borrower’s ability to repay
the loan. Nor should such a borrower be put into a PACE loan without a clear and
accurate engineering assessment beforehand by a neutral engineer that represents
the borrower. The engineering assessment needs to demonstrate what the project
will cost, what it will save, and when the savings will accrue. For example, a
solar panel may help a homeowner save on winter heating bills, but only
seasonally, and this should be made clear to the homeowner up front.
Further, all fees of the loan should be required to be fully disclosed before the
consumer takes out the PACE loan, including their amount, timing, what they are
for, and whether they are mandatory or optional. PACENow makes much of the
fact that a solar panel would be guaranteed, but does not address the fact that
guarantees need to be backed with capital. The product manufacturer may go out
of business before the product fails. That would leave the homeowner with an
outstanding PACE loan, with its payments and lien, but no energy savings.
Municipalities using PACE financing may consider the appropriateness of
voluntary compliance with the Federal Trade Commission’s holder in due course
rule, or something similar, to protect consumers. This rule subjects certain
holders of credit, that a consumer used to finance the purchase of goods or
services, to the claims and defenses that the consumer could assert against the
seller of the goods or services.15
Utility companies, governments, and charities commonly have programs for those
who struggle to pay their utility bills.
Question 6: How does the effect on the value of the underlying property of an energy-
related home-improvement project financed through a first-lien PACE program compare
to the effect on the value of the underlying property that would flow from the same
project if financed in any other manner?
PACE loans decrease the value of the property by encumbering it with a lien.
Non-equity forms of financing do not do so.
PACENow.org posts a “talking point” that says, “PACE, like other municipal
15
16 C.F.R. § 433.1 – 433.3.
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assessments, stays with the property upon sale, so homeowners need not worry
that a loan payoff on sale will ruin the cost-effectiveness of the project.”16
This
ignores the best interests of consumers. Homeowners should worry about the
cost-effectiveness of the project because they are paying for it. If a homeowner
were to sell the property before the PACE lien is extinguished, the property value
would be reduced accordingly, so the homeowner would realize less on the sale.
The cost of home improvements, energy-related or otherwise, are very often not
reflected in the property’s market value. PACENow.org simply ignores that a
diminished sales value is a direct consumer cost. Further, profits on home sales
are often not subject to federal income tax, and the PACE lien would diminish
that tax benefit to the homeowner.
PACENow also argues that the PACE lien would be largely immaterial to the
GSEs, even in a mortgage foreclosure, because PACE loans do not accelerate
upon default. This ignores the fact that the property would retain an unsatisfied
PACE lien that diminishes the property value. That diminished value would be a
cost to the GSE.
PACENow argues that “home values increase by $20 for each $1 in annual
energy savings.”17
Its apparent source for this conclusion is a study conducted in
1998. The cost of housing has plummeted since then. Any correlation between
energy savings and property valuations that existed in 1998 is subject to serious
question given what foreclosures and reduced mortgage credit availability have
done to property values. The study is simply obsolete.
Question 7: How does the effect on the environment of an energy-related home-
improvement project financed through a first-lien PACE program compare to the effect
on the environment that would flow from the same project if financed in any other
manner?
The environment does not react to the financing methods people elect.
Super-lien PACE loans are one way to finance energy retrofits. They are
advantageous to suppliers of energy-efficiency products and contractors who
install them because they are more assured of being paid. From the consumer’s
point of view, other financing methods would be more advantageous.
Question 8: Do first-lien PACE programs cause the completion of energy-related home
improvement projects that would not otherwise have been completed, as opposed to
changing the method of financing for projects that would have been completed anyway?
What, if any, objective evidence exists on this point?
Super-lien PACE financing spreads the cost of a project over a long period of
time. This can reduce the monthly payments on energy retrofit projects. Some
16
Available here.
17
Available here, apparently relying on a study available here.
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consumers may be lured in by low payments, and by the PACENow position that
“homeowners need not worry that a loan payoff on sale will ruin the cost-
effectiveness of the project.” This may well cause more energy retrofits to be
made, but it will also increase the risk and severity of defaults. This does not
support the view that consumers would benefit.
Question 9: What consumer protections and disclosures do first-lien PACE programs
mandate for participating homeowners? When and how were those protections put into
place? How, if at all, do the consumer protections and disclosures that local first-lien
PACE programs provide to participating homeowners differ from the consumer
protections and disclosures that non-PACE providers of home-improvement financing
provide to borrowers? What consumer protection enforcement mechanisms do first-lien
PACE programs have?
There are not sufficient protections. The Department of Energy released
guidelines on the types of protections that should be in place, but they are not
binding on the states.18
At a minimum, full compliance with the Truth in Lending
Act, the Real Estate Settlement Procedures Act, and their implementing
regulations should be required. The Dodd-Frank Act amended the TILA to
require that mortgage lenders determine a consumer’s ability to repay a loan
before closing the loan. That requirement alone would be inconsistent with
PACE lending, which is collateral-based. Further, the Dodd-Frank Act largely
limits prepayment penalties on mortgage loans so that consumers will be more
able to refinance their loans or to pay them down faster than is required. This is
another inconsistency with PACE loans, which are not prepayable under any
circumstances – consumers cannot get out of them before maturity.
Question 10: What, if any, protections or disclosures do first-lien PACE programs
provide to homeowner-borrowers concerning the possibility that a PACE-financed
project will cause the value of their home, net of the PACE obligation, to decline? What
is the effect on the financial risk borne by the holder of any mortgage interest in a subject
property if PACE programs do not provide any such protections or disclosures?
PACENow advocates the consumer benefits of PACE loans. “Over the useful life
of the retrofit, homeowners can generate cash savings of $5,000 to $14,000.”19
We question the wisdom of using home equity to finance such small benefits,
even if they were to materialize. The risk of losing a home through default and
foreclosure is a significant concern. Even if it is not likely, it is still a concern
because the severity of a foreclosure is high.
PACE program supporters do not address the fact that a lien immediately reduces
18
Guidelines for Pilot PACE Financing Programs, May 7, 2010.
19
Helping Achieve Environmental Sustainability and Energy Independence, Improving Homeowner Cash
Flow and Credit Profile, Protecting Mortgage Lenders, and Creating Jobs, by the National Resources
Defense Council, PACE Now, Renewable Funding, LLC, and The Vote Solar Initiative, May 3, 2010.
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a property’s resale value. This is a direct harm to consumers. Any cash flow
savings are realized, if at all, only over a number of years.
Question 11: What, if any, protections or disclosures do first-lien PACE programs
provide to homeowner-borrowers concerning the possibility that the utility-cost savings
resulting from a PACE-financed project will be less than the cost of servicing the PACE
obligation? What is the effect on the financial risk borne by the holder of any mortgage
interest in a subject property if first-lien PACE programs do not provide any such
protections or disclosures?
Any disclosures about future utility costs are conjecture and are unreliable. It
would be more appropriate and more accurate to disclose that any future savings
are unknown.
If a PACE loan does not produce the savings hoped for, the result is an increased
risk of default on the PACE loan, the mortgage, or both because of the increased
CLTV, a strong predictor of mortgage default.
Question 12: What, if any, protections or disclosures do first-lien PACE programs
provide to homeowner-borrowers concerning the possibility that over the service life of a
PACE-financed project, the homeowner-borrower may face additional costs (such as
costs of insuring, maintaining, and repairing equipment) beyond the direct cost of the
PACE obligation? What is the effect on the financial risk borne by the holder of any
mortgage interest in a subject property if first-lien PACE programs do not provide any
such protections or disclosures?
Even if these future costs were disclosed, the disclosures would be nothing more
than speculation. Energy-efficiency projects are often new, unproven technology,
so repair costs are unknown. When repairs are necessary, the homeowner may
find it more cost-effective not to pay for the repair. This would defeat the
homeowner benefit of the program.
Question 13: What, if any, protections or disclosures do first-lien PACE programs
provide to homeowner-borrowers concerning the possibility that subsequent purchasers
of the subject property will reduce the amount they would pay to purchase the property
by some or all of the amount of any outstanding PACE obligation? What is the effect on
the financial risk borne by the holder of any mortgage interest in a subject property if
first-lien PACE programs do not provide any such protections or disclosures?
PACE financing should be subject to the TILA and RESPA as are other consumer
mortgage transactions. Characterizing the transactions as taxes to avoid these
important protections is inappropriate. The lack of preclosing disclosures about
the costs and nature of the loan is another reason that PACE lending can be
inappropriate.
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Question 14: How do the credit underwriting standards and processes of PACE programs
compare to that of other providers of home-improvement financing, such as banks? Do
they consider, for example: (i) Borrower creditworthiness, including an assessment of
total indebtedness in relation to borrower income, consistent with national standards; (ii)
total loan-to-value ratio of all secured loans on the property combined, consistent with
national standards; and (iii) appraisals of property value, consistent with national
standards?
PACE financing is collateral-based. There is no requirement to underwrite the
borrower’s ability to repay the PACE loan because the collateral ensures
repayment. There is no requirement to evaluate the LTV when the PACE lien is a
super-lien. Collateral-based lending against a consumer’s residence is
inappropriate.
Question 15: What factors do first-lien PACE programs consider in determining whether
to provide PACE financing to a particular homeowner-borrower seeking funding for a
particular project eligible for PACE financing? What analytic tools presently exist to
make that determination? How, if at all, have the methodologies, metrics, and
assumptions incorporated into such tools been tested and validated?
PACENow states that “actual results will [ ] depend on particular installations,
locations, property types and other factors. . . . Careful program design and
diligent program execution ensures that risks are prudently managed.”20
A professional, independent engineering analysis should be required before a
homeowner incurs an obligation, especially one that puts the home at risk of loss.
Question 16: What factors and information do first-lien PACE programs gather and
consider in determining whether a homeowner-borrower will have sufficient income or
cash flow to service the PACE obligation in addition to the homeowner-borrower’s
preexisting financial obligation? What analytic tools presently exist to make that
determination? How, if at all, have the methodologies, metrics, and assumptions
incorporated into such tools been tested and validated?
PACE lending is collateral-based, and the collateral is peoples’ homes. This type
of financing is inappropriate for consumers.
Environmental Impact Statement
FHFA issued a Notice of Intent to prepare an environmental impact statement under the
National Environmental Policy Act (NEPA) to address the potential environmental
impacts of FHFA’s proposed action. According to NEPA § 102(2)(C):
[A]ll agencies of the Federal Government shall . . . include in every
recommendation or report on proposals for legislation and other major Federal
20
Id.
16. 16
actions significantly affecting the quality of the human environment, a detailed
statement by the responsible official on—
(i) the environmental impact of the proposed action,
(ii) any adverse environmental effects which cannot be avoided should the
proposal be implemented,
(iii) alternatives to the proposed action,
(iv) the relationship between local short-term uses of man’s environment and
the maintenance and enhancement of long-term productivity, and
(v) any irreversible and irretrievable commitments of resources which
would be involved in the proposed action should it be implemented.21
FHFA’s restrictions regarding PACE super-liens is a safety and soundness protection for
the GSEs and a consumer protection to prevent risks of foreclosures. It is not an
environmental action. It is certainly not an action “significantly affecting the quality of
the human environment” within the meaning of NEPA.
FHFA’s action does not prohibit the purchase or use of any energy-efficient device or
service. It simply protects the lien status of mortgages, as provided in the mortgage
obligation documents. It is designed to prevent the creation of super-liens, which are
mortgage defaults. Energy-efficient products that are cost-effective can be financed by
many alternative means. Even if FHFA did not act, the GSEs could themselves make the
business decision not to purchase loans on properties that could become subject to a
PACE lien.
While we would not object to preparation of an environmental impact statement, we do
not believe FHFA’s action requires one.
Conclusion
While we appreciate the concerns for energy efficiency, we cannot support a program
that would risk adding to the default and foreclosure rate. Moreover, the GSEs should
not be involved in any program that entails predatory lending. Finally, the FHFA must
protect the GSEs from super-liens that would further erode their already dire financial
condition, which is a cost to the U.S. taxpayers.
Sincerely,
American Bankers Association
Community Mortgage Banking Project
Consumer Mortgage Coalition
Housing Policy Council
Independent Community Bankers of America
Mortgage Bankers Association
21
42 U.S.C. § 4332(2)(C).