CRA and Solar Energy Lending
Here at SCA we're excited to announce a partnership with Massachusetts Clean Energy (MassCEC) and the Massachusetts Dept. of Energy Resources (DOER) to help them get the word out about an exciting new loan program to encourage solar energy lending to Massachusetts residents (more on this below).
So in this week's newsletter we wanted to discuss some of the compliance ramifications of making solar loans like this.
Ben, what are we talking about here? Well, we're talking about small, unsecured consumer loans to help Massachusetts residents purchase solar energy panels for their home directly, rather than lease the solar panels from "middlemen" who finance the project and then get a cut of the energy savings for a long time. You've probably already heard of this new loan program, but you may be hearing even more as we help the Massachusetts Clean Energy Center get the word out.
See below for more details on the program. Let's jump into the compliance topic of the day.
Avoids burden of some major regulations
First, these will be unsecured loans and, therefore, we're not worrying about TILA, RESPA, (gasp) TRID (gasp), or ATR/QM. Even if they were secured by the solar equipment themselves, that still wouldn't trigger disclosure requirements as TILA doesn't apply to loans secured only by "fixtures." (see more)
But what about CRA? Are solar energy loans a "CRA play?"
Yes, we think they are. Honestly, it's not easy to classify these as a "community development loan" because supporting green energy isn't specifically mentioned as any of the "community development purposes" (e.g., supporting affordable housing, or stabilizing an LMI area).
That doesn't mean these solar loans won't be good for your CRA rating though! Under the normal (not "small bank") lending test, these solar loans can and should help with at least two parts of the Lending Test: (345.22(b))
Lending activity. The number and amount of the bank's home mortgage, small business, small farm, and consumer loans, if applicable, in the bank's assessment area(s);
Innovative or flexible lending practices. The bank's use of innovative or flexible lending practices in a safe and sound manner to address the credit needs of low- or moderate-income individuals or geographies.
Note that under #2, one of the express purposes of MassCEC and DOER's solar loan program is to encourage lending to moderate income individuals. Indeed, lower income borrower can receive 20-30% income-based loan support!
Hey, don't take my word for it; here's an excerpt from the FDIC's 2014 Compliance Manual on CRA:
§ .22(a) - 1: Are there any types of lending activities that help meet the credit needs of an institution's assessment area(s) and that may warrant favorable consideration as activities that are responsive to the needs of the institution's assessment area(s)?
A1. Credit needs vary from community to community. However, there are some lending activities that are likely to be responsive in helping to meet the credit needs of many communities. These activities include:
* Establishing loan programs that provide small, unsecured consumer loans in a safe and sound manner (i.e., based on the borrower's ability to repay) and with reasonable terms;
In our case, the "credit need" for our communities has already been identified (less work for us!)- MassCEC and DOER have shown that Massachusetts residents need these small consumer loans to finance solar energy installations. Solar energy conversions will help many homeowners reduce energy bills dramatically, and lenders historically haven't been willing to offer these products. (I think it has something to do with lenders not seeing this as an earning asset, which it is. "Why do I want to make a $15,000 unsecured loan on solar panels, I wouldn't do that for you to buy a fuel efficient air conditioner!" - The difference is that central A/C is not going to actively earn you money for many years into the future).
Just remember, if you want CRA credit for these loans, you'll need to ensure the data required by 345.42(c)(1) is collected.
And these solar loans should be just as helpful for "small banks" under the CRA's more flexible small bank performance standards. For example, small banks are assessed based on "the percentage of loans and, as appropriate, engaging in other lending-related activities located in the bank's assessment area."
The Massachusetts Clean Energy Center (MassCEC) and the Massachusetts Department of Energy Resources (DOER) are partnering on Mass Solar Loan, a residential solar loan program designed to facilitate broader access for Massachusetts residents and homeowners who want to own their solar PV projects. DOER and MassCEC have developed a draft program manual and financing program agreement and are requesting feedback from the lender community and solar stakeholders.
The $30 million program supported by Renewable Portfolio Standard Alternative Compliance Payment funds from DOER, will provide loan support to lending institutions, encouraging lending for residential solar electric projects and providing residents and homeowners with the benefits of owning solar. Mass Solar Loan will reduce loan interest rates paid by customers and provide credit enhancement to encourage lenders to serve residential customers and moderate income customers.
While DOER and MassCEC welcome general comments on these documents, feedback on the questions in the Request for Information and Feedback form are of particular interest.
Interested parties can access the RFI here. Please submit responses and any questions to SolarLoan@MassCEC.com. by August 4, 2015 at 4:00 p.m. Include "Request for Information and Feedback - Mass Solar Loan Program" on the email subject line.
In other news:
The foreclosure rate is down to pre-crisis levels - That puts a smile to your face! Not to be an alarmist, but does that mean we should eventually expect a shift back up?
Very interesting new complaint report released by CFPB - check out all the statistics, such as the top 10 most complained about companies (Equifax, Experian, BofA, TransUnion, Wells Fargo, JPMorgan, Citibank, Ocwen, Nationstar, and Capital One).
Good news- the TRID deadline has officially been moved to October 3rd.
Of course you've all heard by now that Steven Antonakes, number 2 at the CFPB, is stepping down to return to Massachusetts? Hey Steve, I'm sure we could clear out an office if you're interested in joining up with a fun, innovative consulting company based out of Braintree, getting ready to celebrate its 25th birthday!
Just do it? Read, shoot, aim? Impatient? Jump to conclusions? "Life is a balance between waiting and doing. Many in management put a premium on doing over waiting. Most could make close to 100% good decisions given all of the data and unlimited time." (For Your Improvement: A guide for development and coaching, Lombardo © 2009). How do you find the right balance? On one hand, sometimes the worst decision is no decision (within a reasonable time). But to what extent does a 'bias towards action' go too far? I don't know, but I imagine it has a lot to do with good judgment from lots of experience.
"When you approach a problem, strip yourself of preconceived opinions and prejudice, assemble and learn the facts of the situation, make the decision which seems to you to be the most honest, and then stick to it."
- Chester Bowles
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**These are our opinions. We're not authorized, or willing, to express those of others.**