In a recent report, “Clearing the Air – Addressing Three Misconceptions of PACE,” Morningstar ABS Research clarified a few important points about PACE financing.
Read an excerpt, then click through to see the whole report:
As financing of energy-efficient projects through property assessments becomes more widespread, concerns and misconceptions regarding its use and oversight have become more common. Morningstar Credit Ratings, LLC explores three misconceptions we have heard from market participants regarding the residential property assessed clean energy sector. First, we note that a PACE assessment is an asset-based obligation, rather than a mortgage loan, so lien-to-value ratio, more than an individual’s credit score, is a more appropriate risk indicator.
At their core, PACE obligations and mortgage loans are distinct, and PACE assessments should be subject to different credit analysis. Second, we believe that a PACE assessment does not materially increase the risk to the underlying mortgage, even though the total lien-to-value ratio may increase. Lastly, we address the level of industry oversight amid concerns regarding the possibility of inappropriate financing. There are two tiers of oversight, with state and local governments specifying eligible projects and standardizing practices, as well as industry-initiated internal controls aimed at enhancing consumer protections.
In November 2016, Morningstar gave a AAA rating to PACE bonds in Ygrene’s first public securitization.
- Stratton Report: Morningstar report finds PACE a low-risk and transparent form of financing energy upgrades
- Solar Power World: 3 misconceptions of PACE financing
- Scottsman’s Guide: Morningstar Rates PACE Loans High
- CleanTechnica: Morningstar Reaffirms PACE