Unique Secondary Market Sale Provides Craft3 Liquidity to Expand Program
Craft3 and Self-Help today announced details of an unprecedented multi-million dollar loan portfolio sale that will fuel more energy-efficient loans in Oregon. The sale of Craft3’s $15.7 million Home Energy-Efficiency Loan portfolio to North Carolina’s Self-Help Credit Union represents a new model for attracting capital to energy-efficiency lending. The portfolio sale is supporting loans for upgrades such as installation of high-efficiency furnaces, water heaters and insulation.
Since 2009, Craft3 has partnered with Clean Energy Works (CEW) to provide consumer energy-efficiency loans to Oregonians. Concurrently, the program helps build a network of contractors with increased green expertise and creates local jobs in this sector. To date, Craft3 and CEW’s partnership has helped 2,460 Oregon homeowners finance $23.1 million in energy-efficiency upgrades. These homeowners have averted more than 63,000 metric tons of greenhouse gasses. Overall the program has catalyzed more than $62 million of local economic development, reduced carbon emissions, created jobs for local contractors and reduced home energy use.
“I applaud the public/private partnership between the state, utilities, Clean Energy Works and Craft3 to come up with innovative ways to help consumers access energy-efficiency loans," said Governor Kitzhaber. "Oregon is leading the nation by successfully completing the state's first sale of on-bill energy efficiency loans. This demonstrates how we can translate state policy into on-the-ground results - creating jobs, helping homeowners cut their energy use, and attracting private investment to Oregon’s clean tech sector.”
A key innovation of Craft3’s program is “on-bill” repayment, which allows homeowners to make loan payments through their monthly utility bill. This expands access to credit for energy-efficiency improvements by eliminating the up-front, out-of-pocket costs that often make upgrades unaffordable. The on-bill mechanism also allows Craft3 to review a homeowner’s utility bill payment history as a factor in loan qualification. Using a blend of traditional and non-traditional underwriting techniques, Craft3 has approved loans to over 87 percent of homeowners who apply.
With demand for the program increasing, Craft3 needed additional capital for loans, and found a partner in Self-Help. Self-Help Credit Union, one of the nation’s leading Community Development Financial Institutions (CDFI), has a well-established secondary market home mortgage program and was seeking to leverage its secondary market experience by exploring new lending areas. Self-Help was attracted by (1) the direct impact of providing liquidity for fellow CDFI Craft3, to make more loans; and (2) the broader impact of potentially helping prove the value and performance of on-bill energy-efficiency consumer loans.
“This sale reflects the successful development and excellent performance of these consumer energy-efficiency loans,” said Craft3 President John Berdes. “We also hope the sale will be a model for how secondary markets can help scale up the energy-efficiency industry in the Northwest and nationwide.”
“This was a complex transaction with a lot of unknown risks that had not been worked though before,” said Brian Schneiderman Self-Help’s Commercial Lending Director. “The rubber really meets the road in the details when it comes down to such a significant financial transaction. Having a strong partner in Craft3 was critical.”
A Lawrence Berkeley National Laboratory (LBNL) policy brief released on June 11, 2014 provides an in-depth look at the loan sale, examining how the parties addressed challenges in the uncharted territory of valuing the unique aspects of these on-bill loans and how this partnership might inform future investments in residential energy efficiency loan portfolios. In its brief, “Clean Energy Financing Policy Brief: Selling an Energy Efficiency Loan Portfolio in Oregon”, LBNL outlines Craft3’s energy-efficiency on-bill loan program and how its success drove the need for more liquidity. LBNL then discusses how Craft3 and Self-Help solved the challenges of selling such a unique portfolio to a federally regulated depository institution.
Craft3’s efforts to find a secondary market partner are supported by Bank of America, Bullitt Foundation and Laird Norton Foundation. Self-Help also has received support from Bank of America for its energy-efficiency lending.
“Craft3 developed an innovative solution to address barriers that have kept many property owners from financing important energy-efficiency upgrades that help save energy and money,” said Bob Peters, President of Bank of America in Washington State. “It creates jobs in low-income communities and reduces carbon emissions as these retrofits get underway.”
The LBNL Policy Brief, as well as extensive details on the loan program and the portfolio sale, can be found at: http://www.craft3.org/Borrow/portfolio-sale.