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HomeMy WebLinkAbout2017/06/20 - Public Comments - Brockmnmmom", ABS Research Clearing the Air—Addressing Three Misconceptions of PACE February 2017 Authors: Phoebe Xu I Senior Vice President I phoebe.xuCa)morningstar.com 1 +1646 560-4562 Stephanie K. Mah I Director of Research stephanie.mah(@morningstar.com 1 +1646 560-4571 Brian Sandler I Associate Vice President brian.sandlerPmorningstar.com I +1 646 560-4557 Analytical Manager: Brian Grow I Managing Director I brian.arrow(@morningstar.com I + 1 646 560-4513 Morningstar Perspective 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. Misconception #1: Not Using FICO is Worrisome Lien -to -value ratio is the key credit -risk consideration, because PACE lending is tied to the asset and not to the creditworthiness of the property owner; thus, leverage ratios are more relevant risk indicators than borrowers' FICO scores. An expectation to see FICO scores in residential PACE eligibility criteria may exist because of the similarities between PACE assessments and mortgage loans. Clearing the Air—Addressing Three Misconceptions of PACE I February 20171 www.morningstarcreditratings.com 1 +1800 299-1665 Indeed, both share the same collateral, the same obligation to pay, and the ultimate consequence of property loss if the contractual obligation is not met. However, a critical difference is that the obligation to pay a PACE assessment remains with the land, not the homeowner. Originators may consider three types of leverage ratios when underwriting PACE assessments on the property: the PACE lien to the property's market value, annual tax and assessment to the property's market value, and combined mortgage loan and PACE assessment to the property's value. PACE programs generally originate assessments with low leverage ratios, as owners with more equity in their properties have more incentive to pay their obligations. For example, the assets in HERO Funding 2016-4 had a weighted average PACE lien -to -value ratio of 6.68% and a weighted average combined lien -to -value ratio of 62.74%. Combined lien - to -value is the ratio of the mortgage loan and PACE assessment to the property's market value. The primary risk in PACE securitizations is liquidity. When property owners fail to pay PACE assessments, cash flow to the deal could be disrupted. Liquidity risk is mainly associated with the timing and amount of recoveries. While FICO scores are not part of the underwriting criteria for most PACE programs, major originators collect borrower FICO data. To estimate mortgage defaults in PACE securitizations, Morningstar considers each borrower's FICO score, mortgage balance, and combined lien -to -value ratio, as mortgage defaults may disrupt payments on PACE obligations. Morningstar has not observed any major PACE originators pursuing originations to borrowers with weaker credit. Indeed, borrowers associated with GoodGreen 2016-1 Trust, rated by Morningstar in November, had a weighted average FICO score above 700. Besides, a FICO score reflects only the current homeowner's creditworthiness, and the score may materially change when property ownership changes. PACE assessments typically have a term of 15 to 30 years, and over that period multiple property owners may be required to make PACE payments because the PACE obligation remains outstanding until paid in full. For this reason, PACE is called an assessment or special tax rather than a loan. When analyzing PACE securitizations, Morningstar assumes each assessment will go through multiple default cycles to address the potential deterioration of a FICO score and the possible liquidity interruptions when property ownership changes. In addition, Morningstar may review historical weighted average lien -to -value ratio and the weighted average FICO score of property owners included in an originator's PACE portfolio to identify any trends and may compare them against those of peer PACE originator portfolios. ©2017 Morningstar Credit Ratings, LLC. All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar, Inc. AA^D1II�(�(�� and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO). Morningstar M Jnn G I and the Morningstar logo are either trademarks or service marks of Morningstar, Inc. Clearing the Air—Addressing Three Misconceptions of PACE I February 20171 www morn ingstarcreditratings com 1 +1800 299-1665 Misconception #2: PACE Sharply Increases Risk to the Underlying Mortgage While a PACE assessment raises a property's lien -to -value ratio, any increased risk to the underlying mortgage is likely minimal. The PACE assessment is usually small in proportion to the mortgage, and the improvements that PACE finances often enhance the property's value and contribute to cost savings. While most PACE assessments enjoy priority of payment over the mortgage lender, the magnitude of any loss to the lender is likely to be limited. When a property owner defaults on a PACE payment, only the overdue amount, and not the entire balance, is due. This outstanding delinquent PACE amount has priority of payment over a mortgage loan. As noted, the remaining PACE obligation passes through to the subsequent property owner when a property is sold. In addition, if there is a mortgage on the property, the mortgage servicer is likely to advance PACE payments so the lender can control the disposition of the property to protect its interest As mentioned, residential PACE obligations are relatively small compared with mortgage loan balances and home values. For an average PACE assessment of $20,000 with a 15 -year original term and an 8.5% interest rate, the PACE payment is roughly $200 per month, which can be similar to the existing monthly property tax payment. The PACE payment is only about 14% of an average monthly mortgage payment of $1,398 for a 30 -year mortgage with a balance of $276,000 and a 4.5% interest rate. While a PACE assessment increases a borrower's debt, Morningstar believes these financed improvements often increase a property's resale value. Moreover, the cost savings from such enhancements can partially offset a homeowner's debt burden. Property owners often achieve cost savings such as lower energy and water bills from PACE -financed improvements and savings from the tax- deductible interest portion of PACE payments. Misconception #3: Industry Lacks Oversight Government oversight of PACE programs offers various consumers protections. While private companies administer most PACE programs, local governments typically set guidelines and policies, including eligibility criteria, fee structures, and interest rates. California and Florida, two of only three states that currently offer residential PACE financing, have had courts validate their programs. Morningstar believes that the PACE program's oversight by government authorities and the evolving consumer -disclosure framework will increase transparency and consumer protection. For example, Gov. Jerry Brown signed Assembly Bill 2693 (PACE Preservation and Consumer Protections Act) into California law. The law, effective Jan. 1, 2017, introduced more safeguards, including providing consumers with complete financing terms in advance of signing any documents, full disclosure that an owner ©2017 Morningstar Credit Ratings, LLC. All Rights Reserved. Morningstar Credit Ratings. LLC is a wholly owned subsidiary of Morningstar, Inc. AA^D,II1'�� and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO( Morningstar "I( )nn n and the Morningstar logo are either trademarks or service marks of Morningstar, Inc. Clearing the Air—Addressing Three Misconceptions of PACE I February 20171 www.morningstafcreditratings.com 1 +1800 299-1665 may be required by the mortgage lender to fully pay off the PACE assessment before refinancing or selling the property, and allowing homeowners to cancel the contract within three business days of signing. Separately, the Department of Energy in November published best practice guidelines for residential PACE programs, which outline procedures for state and local governments as well as originators to follow. Likewise, the guidelines suggest a "more rigorous" approach to protect consumers, including verbal confirmation of PACE terms with property owners. In addition, the industry has sought to enhance consumer protection. PACENation, the industry association, recommended consumer - protection policies before the PACE Preservation and Consumer Protections Act became law in California. Originators have taken voluntary measures, such as requirement of consumer calls to verify their understanding of the key financing terms, to address consumer -disclosure concerns. Morningstar views government authorities and the industry working together to improve consumer protections as credit positives. The Federal Housing Finance Agency, the independent regulator of Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, has expressed concerns over PACE's supersenior lien position to mortgage loans. It is possible that the FHFA policy of a property being free and clear of any liens other than a Fannie Mae or Freddie Mac mortgage loan to obtain financing may result in an owner having to fully pay the PACE obligation for the prospective buyer to get funding. In Morningstar's view, FHFA's policy has limited impact on the property's marketability, because owners have the option to repay the PACE assessment when selling their properties. The Department of Housing and Urban Development last year issued a letter offering guidance fpr financing properties with PACE assessments. Such properties are eligible for financing from the Federal Housing Administration (the agency that insures mortgage loans from approved banks) if certain requirements are met. Financing is considered for properties where the PACE assessment functions in a similar fashion to property taxes and the full PACE obligation cannot have a lien status superior to the mortgage obligation. Under this scenario, the PACE lien is not senior to the mortgage and remains with the property. Future PACE payments need to be escrowed. Home buyers of properties with PACE assessments will be responsible for outstanding balances. The FHA stated that this guidance will safeguard it from risk. "Lenders must escrow payments for PACE assessment so FHA should never be at risk of losing collateral in a tax sale. FHA is also protected as its appraisal policy requires that appraisals take into account the PACE assessment and the value of the improvements," the FHA wrote in a prepared statement in July 2016. ©2017 Morningstar Credit Ratings, LLC, All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar, Inc. AA^DuI,I(�(�� and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) Morningstar M Jnn NG and the Morningstar logo are either trademarks or service marks of Morningstar, Inc. Clearing the Air—Addressing Three Misconceptions of PACE I February 20171 www.morningstarcreditratings.com 1 +1800 299-1665 Morningstar views this clarification as a positive development, because it mitigates concerns about having to pay the entire PACE obligation prior to a home sale. Thus, homeowners will be more receptive to making home improvements and enhancements under a PACE program. Industry Overview State-run PACE programs are designed to finance improvements that promote energy renewal and energy and water conservation including lighting, heating and air-conditioning improvements, roofing, piping, and solar panels, to name a few. Instead of incuring significant up -front costs, property owners may spread the payments over a longer period, ranging from five to 30 years. According to PACENation, an industry trade group, l9 states and Washington D.C. have active commercial programs. Meanwhile, only California, Florida, and Missouri offer residential programs. Nonetheless, residential PACE financing has skyrocketed over the past few years, with PACENation reporting the cumulative level reaching $3.40 billion at year-end 2016, eclipsing commercial PACE, which totaled approximately $335 million. Cumulative R -Pace Financing 2010-2016 43,500 15 chart by annCharts $3,000 C„ $2,500 0 LL $1,000 $S00 SO 2010 2011 R -residential Source: PACENation 5 2012 2013 2014 2015 2016 ©2017 Morningstar Credit Ratings, LLC All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar. Inc 1#�\D1II1I�� and is registered with the U S. Securities and Exchange Commission as a nationally recognized statistical rating organization INRSR01 Morningstar M )nn n and the Morningstar logo are either trademarks or service marks of Morningstar, Inc Clearing the Air—Addressing Three Misconceptions of PACE I February 20171 www.morningstarcreditratings.com 1 +1800 299-1665 Cumulative R -Pace Dollars Securitized* (By $ Funded) 2,000,000,000 1,500,000,000 w l,000,000,000 C R 500.000,000 Apr '14 Jul '14 OCC14 2015 Apr'15 Jul '15 Oct 15 2016 Au, 16 ■ 11k Ro Rograrn 11111111.1. 1 . ■ CahrpniaFIR51 *Ygrene's securitization included a portion of commercial projects as well as residential projects. R -residential Source: PACENation Originators, including Renovate America, Inc., Ygrene Energy Fund, Inc., and Renew Financial, have sponsored more than $1.57 billion in PACE securitizations in 2016. The growing appetite for PACE bonds is evidenced by Renovate America's successful completion in September of the largest securitization to date, totaling $320.2 million. Morningstar estimates PACE issuance this year will be about $2 billion. The majority of PACE securitizations have comprised residential PACE assessments. However, Ygrene Energy's GoodGreen 2016-1 Trust was the first to contain both residential and commercial PACE assessments, albeit with commercial assessments representing only about 4.8%. The underlying assets were more geographically diverse, as assessments were from California and Florida, whereas other PACE securitizations typically have had assessments from one state. In the Ygrene transaction, California assessments, known as special taxes in the state, accounted for the bulk, at 82.3% of the portfolio, while assets from Florida represented 17.7% . Compared with other securitizations across structured finance, PACE transactions have been more geographically concentrated. Morningstar views PACE as a beneficial program that offers corporations and consumers the opportunity to affordably implement energy -efficiency and energy -renewable upgrades. In analyzing PACE securitizations, Morningstar considers total leverage a key risk factor, and we believe that a PACE assessment does not materially increase the risk to the underlying mortgage, as energy efficiency improvements should bolster property values and lead to tax and utility savings. As recognition of the nuances in this asset-based obligation becomes widespread, acceptance should fuel future growth. 6 ©2017 Morningstar Credit Ratings, LLC All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar, Inc. AA^D1II�(�(�� and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSR0)Morningstar m RN ul�I and the Morningstar logo are either trademarks or service marks of Morningstar, Inc. Clearing the Air—Addressing Three Misconceptions of PACE I February 20111 www. morn ingstarcreditratings com 1 +1800 299-1665 DISCLAIMER The content and analysis contained herein are solely statements of opinion and not statements of fact, legal advice or recommendations to purchase, hold, or sell any securities or make any other investment decisions. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MORNINGSTAR IN ANY FORM OR MANNER WHATSOEVER. To reprint, translate, or use the data or information other than as provided herein, contact Vanessa Sussman (+ 1 646 560-4541) or by email to: vanessa.sussnian(@morninQstar.com. ©2011 Morningstar Credit Ratings, LLC All Rights Reserved. Morningstar Credit Ratings, LLC is a wholly owned subsidiary of Morningstar, Inc. ��1nn1111InI1�� I rV 1 and is registered with the U.S. Securities and Exchange Commission as a nationally recognized statistical rating organization (NRSRO) Morningstar l ) and the Morningstar logo are either trademarks or service marks of Morningstar, Inc o hero - Improving Home Improvement ..Iata..IllplB Ab The first thing we learned when we launched the HERO' Program in California is that people needed more than financing. They needed better control of the process as they made an investment in their homes to save energy or water. Our first step to empowering homeowners was to guarantee contractors wouldn't be paid until the homeowner signed off that the project was done to their satisfaction. Next, we set up a daily check on contractor licenses and offered dispute resolution support. HERO IN THE CITY OF CHULA VISTA As the leader in PACE financing, we engaged our government partners to help develop industry -wide consumer safeguard policies for PACE programs as set forth in California law, PACENation policy and the Department of Energy best practices. Today, we're seeing the positive impacts on our local economies and the environment start to add up. Consumer safeguards are at the heart of all of those gains. f '• - « • • t �1 �r � •�• \� rte— � • M • • • • V i `� st/ � • Se 6% Sir SO SIP eje 0 IS d •f•�• Impacts are projections based on lifetime of installed products Environmental HERO in Impact Chula Vista Energy Saved (kWh -e) .O Water Saved (gal) 207M Emissions Reduced (ton) 16.2K Homes Improved 585 Local Jobs Created 124 Amount Funded $14.6M Local Economic Stimulus $25.2M Increasing Value HERO helps homeowners lower utility bills in the short term, but we've seen early BUILDING TRUST data' that shows HERO may have a positive effect on home values. Additionally, recent market data shows HERO homes in the Inland Empire of By offering innovative financing California often spent fewer days on the market. These homes had competitive with industry-leading consumer sales prices and list-to-sale price ratios as compared to the larger market during safeguards, HERO is helping the same timeframe. homeowners feel confident making energy-efficient, renewable energy and water- HERO Home Sales MLS Market saving home improvements. In fact, four out of five homeowners choose HERO AVERAGE SALES PRICES 2016 for their PACE project. We have a support team available $400.000 to help both contractors and $375.000 homeowners seven days a week. $350,000 5325,000 S300.000 Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec PZn "�A� 9 4 AVERAGE DAYS ON MARKET 2016 of HERO customersagree they would yv use HERO again in the future' ao s - 70 60 708 Mar k May Jun Jul Aug Sept oct Nov Dec of homeowners are likely AVERAGE LIST-TO-SALE PRICE RATIO 2016 to recommend their HERO contractor to a friend or relative' • to ■ 555 l f ■ 907 971, Jan Feb Mar Apr Clay Jur: Jul Aug Ser: Oct No, Dec of funded projects are completed without dispute' PACE Industry -Leading Consumer Safeguards Renovate America is the leader in implementing comprehensive consumer safeguards. This provides assurance to local communities that PACE programs are protecting homeowners and delivering on public-private partnership responsibilities. P12 PACE Industry Compliance Everyone Agrees to the Rules. Every contractor registered with HERO has agreed to follow our guidelines, which includes our PACE industry-leading consumer safeguards that help protect homeowners throughout their projects. Qualified Products on Every Job. California PACE law requires financing to be applied toward a single purpose. improving a home with products that are certified to be energy efficient or water efficient. Products installed in a HERO project are required to meet local, state or federal efficiency or performance standards. Underwriting Criteria. We have a tech -enabled system that can give same-day approvals—but to verify that homeowners satisfy our underwriting standards. & Providing Homeowner Clarity Clear Disclosures. We show all the costs and terms in a simple, clear form modeled after the 'Know Before You Owe" form homebuyers see when they purchase a home. Terms Confirmed by Phone. We conduct recorded calls with homeowners to confirm the products being installed, as well as details of the PACE assessment. Senior Safeguards. We take extra steps with seniors 65+ and help guide them through the process. VOffering Ongoing Protection Homeowners Get the Final Say. Guaranteed. We work only with contractors who have agreed not to be paid until the homeowner has signed off that the project has been completed to their satisfaction. If the homeowner isn't satisfied, we're not satisfied. Dispute Resolution Support. Unlike many other financing options, we help homeowners and contractors resolve disputes. Setting and Refinancing Support. Our HERO Property Advisors are available to answer questions about a homeowner's assessment throughout sale or refinance transactions with their home. When homeowners sell or refinance, responsibility for the remaining assessment may be able to transfer to the new owner or the new mortgage. The FHA and VA have issued clear guidance in support of PACE assessments remaining on the property when a home is sold and an FHA -/VA -secured mortgage is used by the purchaser. Contractor Quality Rating. We work with hundreds of contractors on a regular basis. We now have a data -driven Contractor Quality Rating system to track customer satisfaction, how quickly contractors resolve complaints and how serious any quality issues are. Excellent contractors get referrals from us. Those who are unable to maintain good ratings are removed from our program. HERO Success Stories Teresa & John Simon Through HERO, the Simons upgraded to a two -zone heating and cooling system powered by home solar. The couple works from home, and are now able to have their respective workspaces at the temperatures they prefer—with an electricity bill they both like a lot better. And no wonder their electricity bill went from around $400 each month to just $70 per month. Mauzy Heating, Air Et Solar Since they've started working with the HERO Program, Mauzy Heating, Air 6 Solar has increased their business and added 121 jobs in San Diego County. Mauzy Heating, Air 6 Solar President Matt Mauzy says, 'HERO is a game -changer for our customers because they are able to make these energy-efficient upgrades and live a more comfortable lifestyle.' Helping communities thrive, one home at a time. Renovate America is on a mission to help homeowners across the country make their homes more comfortable and efficient. Through award-winning programs like HERO, Renovate America offers an innovative way for homeowners to make energy- efficient and water -saving upgrades—with peace of mind throughout the entire process. ��11�� �` U.S. ENVIRONMENTAL PROTECTION AGENCY U.S. Climate Leadership Award for Innovative Partnership am - OFFICE OF SCIENCE AND TECHNOLOGY POLICY --- 2016 White House Water Summit �= Renovate America U.S. GREEN BUILDING COUNCIL Best Residential Partnership URBAN LAND INSTITUTE Best of the Best CLIMATE CHANGE BUSINESS JOURNAL Business Achievement Award GLOBAL CLEAN TECH Global Clean Tech 100 0 2017 Renovate America. Inc 4 1- RENOVATEAMERICA AN OPEN LETTER TO HERO COMMUNITIES Doing something new is never easy. But if you're committed to learning lessons along the way, you continuously get better. The idea behind HERO is simple. We want to help homeowners invest in their homes to save energy or water, or to make their most valuable investment — their home — safer and more resilient to extreme weather. Our company, Renovate America, allows only efficiency -rated products, monitors contractor performance, and stands by homeowners from start to finish. The contractors we work with agree not to be paid until the project is done to the homeowner's satisfaction. A property's eligibility is primarily based on equity in the home and the homeowner's tax and mortgage payment history, and financing is repaid through a new line item on the local property taxes. It's called PACE, or Property Assessed Clean Energy. Simple ideas aren't always simple to implement. Just over five years ago, the first homeowner used HERO financing for an energy-efficient home improvement. Since then, Renovate America has helped 90,000 homeowners make improvements to their homes. We have worked to improve the process for contractors, the accountability to local governments, and most importantly, the experience for every homeowner. We want you to understand what we've learned and done along the way. And that we're not done yet. Every year, one in six homeowners replaces a system or product in their home that affects energy consumption. Too often, they don't choose the product most likely to save energy or water or reduce carbon emissions - a product that can often help pay for itself over time. Or they want to go solar, and need a way to pay for it. HERO is working to lower energy and water consumption. Last year, the Lawrence Berkeley National Laboratory reported that, in 2014, 46% of financing volume in home improvements that affect energy consumption was made by Renovate America's HERO program and one Massachusetts government program. HERO homeowners will save an estimated $3.6 billion in lower utility bills and more than 8 billion gallons of water. The investment research firm Morningstar issued a positive verdict on how PACE is working in the marketplace with a recent report: "Morningstar views PACE as a beneficial program that offers corporations and consumers the opportunity to affordably implement energy -efficiency and renewable- energy upgrades," allowing homeowners to make improvements that "bolster property values and lead to tax and utility savings." HERO is helping to improve homes. A peer-reviewed study published in the Journal of Structured Finance in 2016 found "the net impact of PACE on resale value of a home, after taking into account the cost of improvements, ranges from $199 to $8,882." That means homeowners recovered at least 100% of the cost when they sold their home. The study compares that to other popular home improvements, such as kitchen and bathrooms, and cites prior studies showing they recover only 58% to 66% of their cost when the home is sold. HERO is creating local jobs. In five years, we estimate we've created more than 18,000 jobs and $3.7 billion in economic impact in the communities we serve. RENOVATEAMERICA Here's how HERO helps. Let's say it's 103 degrees outside and your air conditioning has given up. What options do you have in terms of new systems? How do you know which contractors are above board? We created an instantly accessible database of more than a million performance -rated products. That's for the planet. We set up a first-ever daily interface with the California Contractors State License Board to check contractor licenses. We've declined to do business with more than 1,900 contractors based on licensure checks alone. We brought new tech tools to the underwriting system to try to get you and contractors in your home an accurate read on whether you and your home are eligible for HERO financing within minutes. To help homeowners understand the terms of the financing, we put in place a disclosure form modeled after the federal Consumer Financial Protection Bureau's "Know -Before -You -Owe" mortgage disclosure. We also require homeowners to do a live, recorded phone call with us 100% of the time before they can sign financing documents — so we can go over the key terms. For seniors, we ask extra questions and provide additional review of those calls. We have an elder advocate monitoring to help make sure financing and projects only move ahead if homeowners age 65 and up have been clearly communicated their obligation. We strive to offer more than financing — we strive to offer peace of mind. We offer investigative and dispute resolution services if you're not happy with the job your contractor did. When HERO homeowners want to sell or refinance, we're still here. We have a group called HERO Property Advisors standing by to help you, your agent, and your lender make the most of the energy- or water -saving upgrades and work with lenders. In 2017, we set new interest rate options. When the new rates are offered by a contractor, they will lower financing costs quite a bit. We are asking for more oversight. Not what you normally hear a business say. We joined with others in the PACE industry to establish new national standards informed by the U.S. Department of Energy's best practices for PACE. We're asking state legislators in California to enact into law many of these requirements, building on the disclosure requirements they made law last year. We are working on how underwriting should include income considerations. We are working with national consumer advocacy organizations to make the case for federal regulation. We're serious about consumer protection. We brought big data to home improvement. We brought a new level of data rigor and objective evaluation to our contractors. We stopped doing business with 55 contractors with poor records in the last six months as a result of this new Contractor Quality Scoring system. That's out of a pool of about 500 contractors active with the program in a given month. Good contractors don't have a lot of complaints. Those are the ones we help you find. Those who do have complaints, and don't work to fix them, are suspended or terminated. There's really nothing else like this in home improvement. RENOVATEAMERICA We are aligning our own team to this promise. Like most businesses, we give bonuses based on performance. We're shifting the focus from volume to quality. We are now tying employee incentive pay directly to our Contractor Quality Scorecard. It's about creating a pool of home improvement pros who care about happy homeowners. We also brought on new leadership to the teams that work most closely with contractors. What if we made homeowners the ones who knock on a contractor's door, instead of the other way around? We'll be launching a new version of renovateamerica.com soon, and the idea is to help and inspire people to make the right home improvement that will save the most on utilities and add the most value to their home. We will give homeowners a new digital platform to find the highest-rated contractors in their area, energy-saving ideas and information, and financing options. If you've read this far, you care. Be assured, we get it. We know the idea of PACE is a good one; success for homeowners lies in how well it's done. To that end, the American Council for an Energy Efficient Economy notes in a recent commentary that "the PACE industry is voluntarily adopting more stringent standards than traditional home improvement loans." With HERO, we only exist in a community because local governments decide to make the power of PACE financing available. We welcome scrutiny, and we want to know what more we can be doing. Thank you.