Green Lending Offers Credit Unions a Growing Market
Environmental professionals who specialize in helping consumers improve their homes' energy efficiency say credit unions have an opportunity to step into a growing market in green finance.
"This could be such a good market niche for credit unions to fill," said Jason Holstine, the owner and founder of Amicus Green Building Center, an environmental supply retailer and consultancy headquartered in Kensington, Md., just outside Washington D.C.
Holstine and other environmental consultants said the green lending market opportunity has arisen as the short comings in a federal program designed to fund these sorts of environmentally motivated home improvements, called the Property Assessed Clean Energy program, have become more evident.
The Obama administration unveiled the PACE program in 2008. PACE provided loans for things like solar panels or new environmentally graded windows, and it allowed homeowners to repay the money over many years through surcharges on property tax bills. Further, since the repayment mechanism was through property taxes, the obligation to repay remained with the house and not the borrower. If the borrower sold the house before the environmental improvement was completely paid for, the obligation to pay moved to the next property owner. Also, program advocates pointed it that it would improve the home improvement industry and perhaps lead to bonds backed by PACE loans.
But an unforeseen bug quickly became apparent as the program got underway. The PACE loans took the first-lien position on the improved property, meaning that if the borrower or some future owner of the improved property went into foreclosure, mortgage lenders would take a back seat on the repayment.
This effectively made the PACE loans into almost a toxic badge as far as mortgage lenders were concerned and that meant having one attached to a property made it almost certain that a potential buyer would have a great deal of trouble arranging financing for the purchase. And if that were not enough, Fannie Mae and Freddie Mac virtually drove the program into the ground in May when they announced to lenders that they would not buy loans mortgages that are subordinate to other loans, meaning that if a lender granted a mortgage on a home with an existing PACE loan, the lender would not to be able to sell it into the secondary market. Fannie and Freddie's announcement effectively killed the program for those who planned to sell their homes before they paid off the entire improvement bill.
Schwartz' consultancy has worked closely with the $3.8 billion Bethpage Federal Credit Union to set up its green lending program. The Bethpage program offers home equity lines of credit, fixed-rate home equity loans and an unsecured loan product to members who work with LI Green to improve the energy sustainability of their homes. The loans have caps on their origination fees, lower interest rates and higher debt-to-income ratios than do similar, general loans.
Schwartz, whose group has a goal of having 50% of homes on Long Island save at least 25% on their utility bills within six years, explained the loan program sought to make loans available at as many points on the environmental improvement scale as possible.
While Schwartz and Bethpage have focused on the renovation or reconstruction aspect of green lending, the $21 billion State Employees' Credit Union, headquartered in Raleigh, N.C., has been making green mortgages.
Since 2008, SECU members who purchase or build a home that qualifies for an Energy Star certificate from the U.S. Department of Energy and the U.S. Environmental Protection Agency receive loans with lower origination fees, low fixed rates and flexible underwriting, according to Spencer Scarboro, senior vice president for mortgage originations for SECU.