Pricing on Western Riverside Council of Governments' (WRCOG) HERO Funding Trust 2014-2 is cheaper than the issuer’s inaugural deal. The 10.6-year bond yielded 4%, compared with 4.75% for its inaugural deal completed in April, which had a very similarly structure.

The major difference between the pools of collateral backing the two deals is that the latest deal has loans from ten new counties representing 60.1% of the pool. The initial deal featured collateral only from Riverside County while Riverside County represents 39.90% of the HERO 2014-2 collateral pool.

Kroll Bond Rating Agency rated both of the single tranche offerings at ‘AA’. 

Property Assessed Clean Energy programs allow property owners to finance energy efficiency and water conservation projects through property tax assessments. HERO 2014-2 is backed by 6,858 pace assessments levied against 6,666 residential properties in eleven California counties. The average assessment is $19,414 with an average annual payment of $2,499.

PACE liens are senior to mortgages, and the Federal Housing Finance Agency, the conservator of Fannie Mae and Freddie Mac, believes that they contravene the terms of mortgage insurance provided by the two companies. This means that there is a risk that the FHFA could challenge the validity of a PACE lien in court, resulting in an impairment.

Kroll views this risk as remote, but has nevertheless applied a stress test assuming that the 36% of mortgage in the pool encumbered by Fannie or Freddie mortgages defaulted and had their PACE liens nullified.

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