It may not feel much like Spring, at least in the Northeastern U.S., but there are plenty of green shoots in the securitization market.
On March 15, the Western Riverside Council of Governments in California sold the first securities backed by assessments on homes that have benefitted from energy efficient upgrades. The $104 million deal, while small, is nevertheless notable because it was completed despite the threat of a legal challenge from the Federal Housing Finance Agency, which objects to the senior lien that this financing creates. Most Property Assessed Clean Energy, or PACE, programs around the country were suspended four years ago, when the FHFA ordered Fannie Mae and Freddie Mac to stop buying mortgages on properties with PACE assessments. But not in California, where local governments continue to roll out new programs. Securitization may help accelerate this lending.
Toyota debuted another kind of green bond in March: it is backed by the same mix of collateral as rest of the automaker’s securitization program, but proceeds of approximately $1 billion have been ring fenced to finance purchases and leases of hybrid gas-electric vehicles. Though upsized, to $1.75 billion from $1.25 billion originally, the deal priced more or less in line with recent prime auto deals from other manufacturers. Reducing funding costs was not the primary goal. Rather, Toyota wanted to demonstrate its commitment to environmentally friendly transportation.
Rounding out the green theme, we have an Observation from two academics, Theresa Alafita and Joshua Pearce. They examine how standardized solar assets will cut costs for developers by faciliting securitizations of pooled collateral.
While these new asset classes offer the potential for growth, regulatory issues continue to weigh on the securitization market. Carol Clouse provides an update on the Volcker Rule, which has made it difficult for banks to hold the senior tranches of collateral loan obligations. Despite pressure from Capitol Hill, regulators appear to be in no hurry to provide relief.
One area where there has been some movement is housing finance reform. Victoria Finckle and Donna Borak provide a cheat sheet on legislation introduced by the two senior members of the Senate Banking Committee.
And John Hintze looks at the likelihood that Congress will reduce the government backstop for terrorism insurance, and how this will play out both in commercial real estate finance and insurance-linked securities.
