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Video courtesy of the U.S. Department of Energy

This roundtable features leading experts in finance, energy efficiency, and capital access discussing findings from the first-of-its-kind study, Long-Term Performance of Energy Efficiency Loan Portfolios.

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Jigar Shah:  I think you're on, Kathleen.

Kathleen Hogan:  Thank you. Thank you, Jigar, and with that, Jigar, good afternoon I'm Kathleen Hogan principal deputy undersecretary for infrastructure at the U.S. Department of Energy. And I'm really pleased to welcome today's audience and our distinguished panel to this roundtable on energy efficiency loan performance. 

You know just last week, our Secretary Granholm announced the first of its kind study, Long Term Performance of Energy Efficiency Loan Portfolios, which shows that financial institutions can lend money to their customers for residential energy efficiency upgrades at a lower risk than previously understood. 

The Lawrence Berkeley National Lab study addresses a very important gap in our knowledge of how energy efficiency loans perform with respect to repayment from borrowers, and this critical information is really necessary to attract and sustain a private capital investment. 

The study, which analyzed over 50,000 residential energy efficiency loans from four large programs in Connecticut, Michigan, New York, and Pennsylvania, confirms that energy efficiency loans are generally low risk, have historically been repaid at a high rate, and the performance is comparable to high performing asset classes, such as prime auto loans.

Additionally, among the three portfolios for which the research team could calculate census tract place-based incomes, at least 30% of the loans went to households from low- and moderate-income areas as defined by the Community Reinvestment Act. And the study also finds that high credit borrowers in low- and moderate-income areas repay financing at a stronger rate than generally understood by the financial markets.

Together, these are just valuable amazing findings for investors and financial institutions, motivated by financial returns and looking to advance mission driven lending or support compliance under Community Reinvestment Act, and under the historic Infrastructure Investment and Jobs Act, also known as the Bipartisan Infrastructure Law or BIL, DOE and our federal counterparts will make a multibillion dollar investment in states, communities, and tribes that will accelerate clean energy deployment in America's homes and businesses.

The findings of the study we see as a very well-timed invitation to credit unions, banks, community development financial institutions, and other financial institutions to help invest in the transition to a low-carbon, energy-efficient buildings and to earn a financial return. You know, engagement from private capital will significantly amplify the impacts of the Bipartisan Infrastructure Law.

By leveraging private capital, we can expand access to low-cost financing for all the Americans that we care about including especially disadvantaged communities. We can fast track the creation of jobs and we can truly accelerate clean energy deployment. 

So, it makes me really excited today to kick off this roundtable, and let me first thank the leaders of the U.S. Department of Treasury, the Connecticut Greenbank, Michigan Saves, and the Solar and Energy Loan Fund for their participation today. I'm very excited to hear their insights and the discussion of the opportunities ahead, and with that I'm going to turn it over to our events moderator Jigar Shaw, who already kicked us off right at the front to share some insights and as well as to introduce our panelists so really looking forward to a great discussion Jigar Shaw, head of our Loan Programs Office.

Jigar Shah:  Well, thank you, Under Secretary. This is a really exciting report, and we're just delighted to be able to share with all of you for those of you who are still on investment banking platforms and then JP Morgan Chase to the big _____ report last week and their proprietary work as well. So, very exciting to see how much interest it's getting. 

I think that the reason, the reason, this is so exciting is, for many of us, really, we now have data to back up what we thought we already knew, which was that energy efficiency loans perform better than other unsecured consumer loans. As a result, we know that these loans will perform better than credit rating agencies have been reading, which will reduce the cost of lending for distributed energy resources, particularly to LMI communities and overcome assumptions tied to FICO scores.

This report is so important because it will help investors, rating agencies, and lenders to really understand the performance of energy efficiency loans and from an LPO perspective, it can expand the window of borrowers that we can help through our loan programs helping them gain access to energy efficiency lending, reduce their energy costs, and reduce debt service costs. Doing that can have a huge impact on reaching the scale we need to achieve our climate goals. 

It's now my distinct honor to introduce our panelists. We have four experts with a range of experiences and knowledge in financing capital access and clean energy deployment. 

Our roundtable panel features Adair Morse, the deputy assistant secretary of capital access in the Office of Domestic Finance at the U.S. Department of Treasury; Bert Hunter, executive vice president and chief investment officer of the Connecticut Green Bank; Doug Coward, founder and executive director of the Florida-based Solar and Energy Loan Fund; Todd Parker, director of programs for Michigan Saves; and Joe Smith credit expert in the Office of the Comptroller of the Currency at the U.S. Department of Treasury. 

Thank you very much for joining us, I wanted to start really just by asking you to maybe you know give some opening remarks, but also comment about, you know, how important it is for the government to be able to have this kind of partnership with the private sector around providing this kind of data. I mean, I think, for many of us we're seeing the solar industry securitizing over a billion dollars a month in this kind of paper, and I think the, the loss assumptions, for, you know, these loans are exceeding 25% because people are using credit card receivables and hopefully receivables as their benchmark, when the lived experience of the solar industry was much lower, and so I'm curious, you know, how you guys think about this and, you know, obviously, provide and any introductions when you start. Adair, do you want to start? 

Adair Morse:  Sure, thanks, Jigar. Thanks, and happy to be here. Really, really great news on that report so congratulations on getting that out, and I hope folks are paying attention and will spiral into capital right. I'm a finance geek so that's my goal: spiraling into capital is a good thing, and so—let me just say a couple of things on treasury but also some big picture and things as well. At Treasury, we are a—we have financing programs that are—both work through this the CDFI architecture: the CDFI Fund, the CDFI recovery efforts, and other endeavors there, as well as the State Small Business Credit Initiative, which many of my panelists hopefully are quite familiar with here, which provides—it's a $10 billion facility that provides states, territories, DC, and tribal nations with funding to stand up programs for, you know, reaching populations, and a host of different kinds of programs are available. 

We know many of these states and, and you know, it's a fair amount of funds. And so most states have multiple types of programs, which is, which is super useful for our topic here, because the need to get to support SME engaging with energy transformation and energy efficiency projects, and generally to support community driven—taking control of these transitions really relies on getting the private capital markets to pay attention. 

We heard from a large consultant recently that the capital markets are very much paying attention with the green transformation in above mid-capsized firms and by mid-CAP and down, not so much. And I think the role of our program at Treasury, as well as many, many other programs is to enable other programs that are crowding in private capital, right? Our program has rules from Congress about crowding in private capital that's really important. Get the private capital sector involved and bring that to fruition. So most states have a program that's consistent with providing loans and equity investments that are the horizon that make these transformations feasible for businesses. And some states as well here in the leaderships that we see on the screen have dedicated programs toward these endeavors and we a Treasury are working to do more sharing of best practices among states, territories, and tribes, whether there are those dedication toward these endeavors in and success stories that we see and Jigar and I have had many conversations about the tribal nations as well on this front and really trying to provide that capital of where it needs to flow.

So that's kind of what I had to say in an opening remark. I just, you know, not covered here, there are other aspects of the federal government that are also just—if I could just mention, you know there's fixed asset programs in the SBA commerce and doing their other kind of development and place-based strategies. You know, there's a host of things and we—the reason I've had so many conversations with Jigar is we've been trying very deeply in the last year to bring together more resources, so we could do things together to make it really work for local entities and local governments so. Thanks.

Jigar Shah:  That's great Adair, and you know, Bert and Todd, I think your respective organizations Connecticut Greenbank and Michigan Saves have loan portfolios included in the study. I'd love for you to share, you know, obviously give some background on your organization but also share a key takeaway from the loan performance study and any, you know, insight on, you know, what the potential implications are for your organization. Bert, how about we go to you first.

Bert Hunter:  Sure, Jigar, and good to see you again and in your new role. Well, not so new, but anyway. So just to introduce myself, I've been CEO—CIO, sorry, didn't want to take Brian Garcia's chair—of the Green Bank since 2012 about a year after it was formed by an act of our legislature. 

This step to the Green Bank came after a 30-year career in commercial and investment banking, which was very important for so many of our programs because I speak banker. And so it's one of those curious business languages it's necessary when you're trying to do programs with lenders and investors. You know, too often government gets very wonky and, you know, starts to talk about, you know, what they want to do and what they want to get done and they're not really cognizant of the things that are important to lenders and investors. So, I certainly bring that to the table and my team does as well. 

You know the Connecticut Green Bank works at the at the intersection of public and private resources. We exist, as Adair mentioned, about leveraging in in private capital with our limited public resources and also, you know, Justice 40 and vulnerable communities are very much at the Center of the activity of what we do, and with a goal to devote 40% of our investment to those communities over the next few years and we're very close at target and as we, as we stand. 

Yeah, but yeah as it relates to the Berkeley study, which was it's just fantastic, by the way—my main takeaway—and I really love, this, is, and it kind of gets back to what Jigar already said—is it this study perfectly validated a key thesis that we posited back in 2013 when we launched our program, which is called Smart-E. And that thesis was that unsecured EE and renewable loans to homeowners, unsecured, would perform equally well as secured loans, such as auto loans. And the study bears this out in a head head-to-head comparison with auto loans. And this expected loan performance allowed us to be courageous in setting some generous loan loss reserves—thank you, ARRA funds, by the way, another DOE program—so that we could democratize access, open up the credit box, and make the benefits of the green economy inclusive and accessible to all. In fact, 35% of Smart-E capital has been directed to more vulnerable communities which we're very proud of. You know this, this hypothesis was critical to the structure of our programs loss reserve and importantly to the retained loss feature, which I could go into later if there's time, but as which has resulted in less than 20 basis points of value being paid out. For loan losses on a $90 million dollar portfolio that has spanned eight years. I mean that—I mean that's just an impressive record any way you cut it.

And that's directly derivative of the data study that Berkeley did. The implications, I think, for the future is that these loans will have even broader acceptance among lenders and investors alike. We're already seeing this with Inclusive Prosperity Capital our green bank's spin out company. They're engaged in launching Smart-E in Mexico, Arizona, Texas. They're discussing it actively and in another half a dozen states from Pennsylvania, Oklahoma City, Washington state. I mean this study is just a real homerun for these loans and loan programs like ours and others today that can really reach into various areas of the country and reach a number of very vulnerable communities, you know, with impact.

Jigar Shah:  No, I absolutely agree with you, Bert. Thanks for, for sharing that with us. Todd?

Todd Parker:  Yeah, hello good afternoon everyone. I'm Todd Parker director of programs for Michigan Saves. We are proudly like to say we're the nation's first nonprofit green bank. We're actually conceived back in 2009 when Secretary Granholm was governor of Michigan, and Michigan Saves is one of her legacy achievements as governor of the state. My thanks to the DOE and the team at the Lawrence Berkeley National Lab for inviting Michigan Saves to participate in the study and provide the data. It's really exciting for us to, as Bert said, validate what we've always known, which is that our loans and energy efficiency loans in general perform just as good as any other loan on the market, if not, if not better.

I have two takeaways from the study and probably gonna sound like a broken record here between what you Kathleen and Bert have already said, but that we see this study, not only as a validation of what we already knew, but also as a way to provide some confidence, the private market, private lenders that even traditional underwriting criteria can be expanded for clean energy loans without taking on any additional default risk. The loans are good people pay, we can go farther than just the traditional credit based criteria for these loans without taking on any additional risk.
We're also excited to see that the study shows that the typical home that is receiving these funds isn't that the 80% of the area median income, which is solidly moderate-income communities.

These are the folks that have the higher-than-normal energy burdens, who really stand to benefit the most from these types of loans so we're really pleased to see that our financing is being driven—private capital in general—is be driven out to the folks that really needed the most.

Jigar Shah:  Thanks, Todd. Doug, the Solar and Energy Loan Fund is not represented in the study; however, is a mission-oriented community development financial institution with a focus on deploying clean energy and underserved communities. The study must resonate with you. What are your takeaways? 

Doug Coward:  Jigar, thank you, and good afternoon to everyone, and thank you for the invitation to participate in this important roundtable discussion. My name is Doug Coward and I'm both the founder and executive director of the nonprofit Solar and Energy Loan Fund, or SELF, which is a revolving loan fund operating in the southeastern United States that was first started in Florida. 

What SELF does is offer unsecured personal loans to low- and moderate-income homeowners to complete assorted sustainable building—sustainable home improvement projects. And because the most of the housing stock that we're working with an underserved communities is older, what we're finding is that the typical demand is for high efficiency, ACs and roofs with some limited investment in solar. We also do septic-to-sewer and some other specialty loan programs. SELF was established back in 2010 through an ARRA-DOE grant for the Energy Efficiency and Conservation Block Grant Program and we use that grant to achieve three primary purposes. One was to build the organizational capacity and the internal systems needed to launch cultivate and pilot the energy efficiency loan program in St. Lucie County. The second was to become a certified community development financial institution by the U.S. Treasury Department which we achieved in 2013. And lastly, we needed to establish a lending track record, so that we could attract more private and philanthropic long capital. 

So, self-submission and customized lending programs are all rooted in climate equity with our primary focus on LMI homeowners. But we've also scaled and diversified our organization both geographically and programmatically over the last decade. Our chief financial officer Duanne Andrade also recently developed new landlord loans, so that we can help tackle the difficult issues of rental units with high energy burdens and she also just developed a new housing and community impact loan program so that we're now involved with larger multifamily sustainable development projects. In fact, last week we did a four and a half million dollar loan. So SELF is the only CDFI member of the American Green Banks Consortium, and I think we're one of the very few CDFIs in the country. They're actually offering unsecured personal loans directly to homeowners. Most notably self-advances climate equity through financial inclusion and our underwriting policies are built around the applicant's ability to pay—not credit scores or equity, which is enabled SELF to achieve a remarkable 74% LMI penetration rate, an average credit score of 640, and default rates consistently below 2%. 

It's also noteworthy that SELF is leverage DOE's SEED Grant by a ten-to-one margin by raising $30 million to date from faith based investors, global crowdfunding with, bank CRA investments, impact investors health investors, local and national foundations, and even local government partners. And most importantly, the demand for our products and services and LMI communities has been off the charts. Particularly during the global pandemic, where we experience record breaking lending results. 

We've grown by 400% over the last four years and we've opened up new satellite offices in St. Pete, Tampa, Orlando, Miami, and Atlanta, and Miami. And we've now expanded from one medium sized county in Florida to four states in the southeastern United States, including Florida, Georgia, Alabama, and South Carolina. And we financed over $25 million of loans and helped about 7,000 people. And I would also note that we've created $25 million of economic development activity for our participating contractors. 

So in light of this history, the self team found the Berkeley study extremely interesting and exciting and insightful. It was thoroughly researched, and it was very compelling for more traditional financing and capital markets stand to this space. The study also confirm that we've, what we've already seen and experienced over the last 11 years, which is the energy efficiency loans are low risk. We're also excited to see some of the best green banks in the country highlighted in this study. And in addition to the positive results of the studies showing that high credit score applicants in LMI communities are low risk, the SELF team would encourage a future study of this kind to prove that energy efficiency loans for low credit score applicants are also low risk. SELF believes that financial inclusion is essential to achieve the by the Biden Administration's Justice 40 goals. Thank you.

Jigar Shah:  Joe, you know there's over $500 million a month of this paper being purchased by OCC regulated banks like the Amalgamated Bank and Congressional Bank, and others. Do you have any thoughts on the study? You're muted, my friend. You're muted. There you go.

Joseph A Smith:  Can you hear me now? 

Jigar Shah: Yeah. 

Joseph A Smith:  That's weird. Okay, I've had some maybe difficulties, my apologies to everybody so forgive me. Not technology savvy—financial savvy, not technology savvy. And you take the good with the bad right? 

First of all, thank you very much. On behalf of the OCC, I'd like to take the opportunity to thank the Department of Energy Principal Deputy Undersecretary for Infrastructure Kathleen Hogan. And of course, the esteemed panelists for having the opportunity to be a part of today's discussion. The OCC truly enjoys having the opportunity being supportive, providing insights and assistance in all things related to climate lending and, of course, specifically consumer lending and the energy loan space. 

For those that may not be familiar with the OCC, the OCC is responsible for the regulation of all federal savings associations and national banks. The number of—the amount of assets under the management of the of our banks is a tremendous size. And one thing that we do take quite seriously is the mission that's associated with the OCC, which is making sure that, you know, financial services are being deployed to consumers in a manner that is consistent with all fair lending practices and, of course, making sure that the consumers are protected at every turn. Your observations about the study, which I would echo with my peers on the panel here, and that is, there certainly is a strong validation of the performance of energy efficient loans in this space with, especially with respect to some of its, some of its comparisons. One of the things that I wanted to bring up I guess, and this is that, you know, energy efficient loans are tremendous opportunity for investors to become involved. And there is a tremendous amount of liquidity in the marketplaces as demonstrated by what we're seeing in the equity markets, what we're seeing in the debt markets. the prices that are being paid for asset backed securities and the debt markets, the amount of liquidity that's now on balance sheets, with people putting more and more savings into their accounts. So there's a tremendous opportunity for deployment and we certainly are excited about the opportunities that are in the space. 

Now, one of the things that I wanted to chat about that I noticed about the study is, you know, energy efficient loans is in a really, really competitive world. If we look at consumer lending in the space of energy loans, you know, what are the headwinds? What are the challenges that are faced that they're facing? And one of the things that I noted about that it's the first one, we were talking a little bit offline with the panelists prior to this call and that is obviously their first, first lanes—cash out refinances, you have home equity loans, you have home improvement rooms, we have fixed rates second trust. And you have a lot of companies entering into personal lending space, i.e., FinTechs, that are also offering opportunities to consumers in a very, very quick way. So I think that there's a tremendous opportunity here. I think the study did a tremendous job. I really appreciated the study's candor with relationship with regards, excuse me, to the data that they were working with, the collection, the aggregation, the analysis of the data. I think they did a fine job with the information that was available to them. I would look forward to seeing how that data can become wider and deeper so that so that the story of this in tremendous success can be better told and told even more to the investors in the communities. You know, we start talking about loss rates of cohorts and other asset classes degree, you had mentioned that earlier, you know, a revolving debt security of, for example, credit cards, being at 25% that raises my eyes very, very quickly. Be, especially when you start talking about the loss rates that are currently in the space, which are quite frankly very, very low. So, you know, there's a lot of work to be done in this space. The question is how do we get that story out? And, naturally, I think the, the opportunity that's being presented to the panel today and to all those that are listening.

Jigar Shah:  Thanks, Joe. Just a real question for you probably first, Bert and Todd, from your experience managing programs in Michigan and Connecticut. What do you think could be some of the underlying reasons for this strong loan performance, and how does evidence of strong performance change the perception of financial institutions and investors?

Bert Hunter:  You want me to take that first, Todd, then swing to you?

Todd Parker:  Yeah, go ahead, Bert.

Bert Hunter:  Alright, well first off, Jigar, I mean these, these are good borrowers. I mean they own their own homes, so in nearly all cases they have a mortgage, they've already been credit qualified, if you will. So, these are good borrowers seeking to improve their homes. They're not borrowing money to take a vacation or for some other consumable purpose, you know. So, the fact that these loans have performed so well is really not surprising to me or to Todd, I know. So yeah, hopefully this is the data that so many investment bankers have been wanting to see. I mean I remember back when Jeff Pitkin at NYSERDA, you know, first took his bundle of loans to Wall Street, and they kept saying, 'Show me the data, show me the data,' and he said, 'We just gotten started. We don't have—this is the data. I'm giving you all the data I have.' 'Well, it's not enough. Come back when you've got more.' And so you know, it was this this back and forth back and forth not being able to advance that. Well now, we do have the data, and which it proves the point, and you know, should make it—should facilitate more capital markets activity. Yeah I think we have to keep in mind that there's, Jigar, as you well know, and so does a number of the others on the panel, you know there's just a threshold for loans to be securitize. I mean it's typically you don't even go into that market unless you're at least talking at least $100 million of loan pools. So that's going to remain a practical barrier to access to the capital markets, you know some, some firms like Mosaics, _______, you know, Tesla etc., you know, they're there with their packages of loans, but you know we all know that they're doing hundreds of millions of dollars of loans at a clip when they're entering the market but—

Jigar Shah:  Let me, Bert, let me go off script for a second and just ask you there, I mean one of the things that we're finding is that, you know, when you think about electrifying everything and some of the other trends that we have around decarbonization, you know, one-fifteenth of all appliances in the country are being replaced, right, and a lot of them under emergency circumstances, right? You don't really want your refrigerator to die, but when it does, you believe me, a new refrigerator. And so I mean, part of this is also just making sure that people really know that these are good loans, because a lot of folks are being preyed upon, you know, in those emergency situations, right, and so figuring out how to make sure that there's a diversity of products available from trusted financial institutions. You know at the right time, gives you the volume that you were just discussing.

Bert Hunter:  Yeah exactly, and to do it without—quite frankly, speaking to some of Joe's points—without punitive teaser rates that turn into astronomical interest rates in six months, you know, when you know the programs that Michigan and Connecticut and the others have brought forward, you know they're already starting from a low interest rate base so, and they're low and they stay low for the life of the loan.

Jigar Shah:  Yeah. Todd do you have any thoughts there?

Todd Parker:  Yeah, I think you guys are hitting the nail on the head here. One of the observations, is that these loans performed strongly in the market because they're really affordable for the for the customer, right. The credit enhancements that we have in the background create the lower fixed rates that Bert mentioned, they create longer terms, and we know that if a customer has a really comfortable loan payment they're more likely to make their payments every month. They're not going into delinquencies and they're not having those defaults. It's an affordable payment for them, if you have these, these merchant lending products that have the teaser rates, they often result in much larger payments after the first year, the first period, which makes those loans much less comfortable and affordable for homeowners, which resulted more delinquencies and defaults. So I think that's a significant factor and why these loans perform so well. I also think that these energy efficiency improvements and clean energy improvements also create revenue for homeowners through the energy savings that they—you see on their utility bills. That energy savings is dollars that can be applied towards a loan, and these homeowners have more disposable income due to energy savings, they can make these payments more frequently and pay off the loans more regularly.

Jigar Shah:  Yeah no, it makes total sense. Doug you're not even using credits scores. I mean how, how are you, you know, seeing you know that experience that you have, as well as, you know, correlating it with the results from the study?

Doug Coward:  I would just say that LMI homeowners are often under banked and have lower credit scores, so SELF's underwriting methodology and lending programs help these underserved communities overcome the financial barriers of traditional financing, which is traditionally, you know, based on credit scores. So our inclusive financing is really enabling us to reach deeper intel in ____ markets. And then beyond the methodology, in terms of how we penetrate these markets we primarily achieve these goals through our contractor network of over 800 companies who have told us that they're losing 20 to 40% of all of their business opportunities, because people cannot qualify for traditional financing, which typically requires like a 680 credit score. So self contractors are using our financing to fill that financial gap, help more LMI homeowners, and then grow their business in the process. So as a result, contractors are typically generating about 70% of all of our projects financed by SELF, and I'm proud to say that our number one contractor is a small mom and pop air conditioning company from Fort Pierce has been working with us since the outset, and they've completed more than $1 million of projects, including about 500 American made high efficiency air conditioners, helping LMI homeowners. 

Another way that we reach underserved markets is through our local government partners who helped with SEED Grants and in-kind support for marketing and community outreach like putting us on their websites, using utility bill stuffers, doing events with us, things like that. And one example would be our partnership with the city of St. Petersburg, which is one of the leaders in clean energy in the state of Florida. They use $300,000 from the BP oil spill as a SEED Grant to SELF, so that we could hire staff and establish a local office and St. Pete, and over the subsequent three years, we leverage that grant 10 to one and deployed $3 million of low-cost capital into underserved areas of St. Petersburg. And the best of all, is that because we derive modest fees and a spread on our lending, we've already been able to reach the economies of scale in year four after the grant has expired, so that we can sustain ourselves, even after that SEED Grant is gone. And then just lastly, one other way, that we do penetrate underserved areas is to collaborate with other nonprofit organizations. We participate in different community events, we use social media and hyper targeted ads, and we also develop earned media, you know, primarily through local TV outlets, etc. So those are essentially the primary tools that SELF uses to penetrate these underserved markets.

Jigar Shah:  That's great. Adair and Joe, I mean, I think, you know, part of what I'm trying to figure out is if we're already at 2 billion and one of loan originations in this space, particularly in solar community. That community is expanding into heat pumps and, you know, other appliances and others, and so they're hoping to get up to about 5 billion a month by summer. When you think about how big these numbers are and, what other programs at the Department of Treasury to help make sure that these programs are really more accessible to all Americans?

Adair Morse:  Joe, did you want to start or I'm happy to—

Joseph A Smith:  Adair, Adair, please, ladies first.

Adair Morse:  Okay, all right. I'll take that. So, let me just say, you know, we're missing some sectors, Jigar, right. We've talked a lot about households here and, of course, households have the numbers right that's where there's the most count. But we also, you know, the big energy users that need help in, on, sitting on main street sitting, you know, in a fabrication or ag processing small business. Many _______ across the United States they're not being paid attention to and our programs are just now starting to focus both on, you know, the government—we've been trying to get to the sector, but more importantly, or equally importantly, the capital markets and the financial institutions, looking to these sectors. And I think one of the takeaways from the study should overlay into thinking about horizon and getting those loans right from main street to transform and for these fabrication across the United States. And this is very much every state has these small fabrication facilities, ag processing, supply chain places where inputs are produced and transported and all of this, you know the trucking industry. All of this requires capital, and so there historically, one of the hindrances has been the mismatch in the horizon. And I noticed that the study—

Jigar Shah:  Yeah. 

Adair Morse:  —that the average horizon in that study was 100 months and, you know, we need to pay attention to that as we design our small business programs and SME programs, and so forth. And so at Treasury, you know, again I mentioned previously, the CDFIs have a big role to play, because they are the community facing as well as credit unions and minority depository institutions, other community facing—you know, the financial institutions that are paying attention to what's happening at the local level. So we need that and we need those products coming through, and we need the support of the state and local governments who can support institutions and that reach. And so that combination, from my point of view, is something we need to make sure we're getting there, and again, I mentioned the SSBCI Program that funnels money you know the states and territories ______ and takes that money and provide it to these sort of institutions to get out these programs and so more work, right? These are—each individual loan, right, takes some effort because it's not a standardized product and we just need, we need to go there. We need—

Jigar Shah:  Yeah.

Adair Morse:  —the financial architecture to go there.

Jigar Shah:  No, I think it's a, it's actually a great point you're making and one that, you know, might even be further study for us, right, because a lot of the SME loans are actually personally guaranteeing, right, and so where their performance might differ slightly from these residential loans and so I think that's probably something we have to study. But you're right, I mean it's a huge user of energy, and on top of that, the last 12 months, I think, has been the largest, you know, business starts that I've seen in 20 years it's a big, it's a bigger_____. Joe?

Joseph A Smith:  Thank you, Jigar, and to dovetail on what Adair is saying—and so I'm going to circle back to an earlier comment that I made, that is, the standardization of any product is always going to give that level of popularity uniformity and so, in terms of I guess one marketing of what's going on and the success—I think, to the depth and width of the information in terms of performance data can be extraordinarily helpful. And can give a little scale to this, if we go back in time to the financial crisis that one of the things that came out of the financial crisis, at least on the mortgage space was Reg. A B2 and Reg. A B2 have disclosure requirements, for example, for mortgages and other asset classes and the level of data that's required there is pretty significant. 

Now, in this particular space, is all of that data and necessarily available? To answer is probably not, okay, but where there is an opportunity for this space to become, if you will, that to develop that level of standardization is going to really start garnering a lot of interest from a capital perspective, okay. And I think Bert talked a little bit about that, before—'Well, I have data.' 'Well, go get more data.' And you know—and not to, not to try and create weight, but I think, to give the opportunity to really grow and get past the numbers that are talking about now and make it even more expansive and as it becomes more expansive then, you can really, really push the LMI communities, really help those borrowers out and find even more creative ways to be able to get home improvements in the form of energy efficiency to these people, so they can save money, so they can develop, you know, a thicker file from a credit perspective—all of those things that we're trying to do to help you get more and more people engaged in our financial system.

Jigar Shah:  That's great. Yeah no. It really brings it home in terms of the scale, right, I mean, you know, we just announced our weatherization program last week here at the Department of Energy, and there's about 39.5 million homes that we believe are eligible for weatherization. To put that in perspective, the ______ of money that happened under ARRA stimulus served one million loans, which was a huge feat, right. On average, I think we support about 35,000 homes. And so, when you think about just the pure scale of how many homes need to be weatherized, it's just it's a huge scale and it's one that you know this market can really serve. It's probably between three and $400 million to be able to serve that market, but we think about the sheer size of capital flows, you can get there.

Joseph A Smith:  Right.

Jigar Shah:  Go ahead, Joe.

Joseph A Smith:  And, if I may add, I mean, I'd like to think about this holistically, and the holistic sense being not just national bank snippets but state chartered banks. State chartered banks, really, really know their communities well. They understand the communities, how they're developing, the needs of the communities. So, you know, the more that we can get down farther with state chartered banks and the local communities, I think that'll give even more lift to what's going on here, because you know, we need to be able to make energy efficient loans competitive. Competitive in the space of HELOCs, home eqs, first lien, re-fi, cash out re-fis, which has been the traditional and that's a very traditional paradigm. We're trying to move beyond just the traditional paradigm, and this space is really forging the way. They're the tip of the arrow, if you will, and I think there's a great opportunity, if we can start getting that down to not just _____ but the state banks as well.

Jigar Shah:  Yeah no, I think that's exactly right. Bert, you know, one of the things I was curious about is, one of the big challenges in this area, and I think it ties a little bit to what Joe was just talking about in terms of, you know, the more traditional products like HELOCs, etc., is that, you know, customer acquisition costs have really been a huge burden, I think, in the space, and I think one of the things that a lot of the programs have prided themselves in is being able to outfit a contractor with an app that actually allows people to get pre-approved right in folk's his driveway, right. I mean, you know, just it feels like there's a lot of innovation happening in the space around the reduction of customer acquisition costs, and you know, can you talk about maybe some of what you've seen from your, you know, your partners?

Bert Hunter:  Yeah definitely fintech has brought a lot of that innovation to the space. I would hasten to say though we're, regretfully so, I think the contractors are paying dearly for it. 

Jigar Shah:  Yeah. 

Bert Hunter:  They pretty much have so they get the instantaneous approval, but they have to have a contract or access fee to be able to even step forward and to get the capital. And then you're generally dealing with a cost of capital that is more expensive than, say, the loan rates that say Doug or Todd or myself are talking about. And then that's, of course, not the customer facing rate but that's a contractor facing rate. So, then, the contractor then has to buy to buy that down. So yes, I mean there's you, you get over here with the fin tech world, a lot of that innovation and some of that gets hidden away from the consumer, because it's all those costs are kind of blended in the cost of delivery—.

Jigar Shah:  But a lot of volume there.

Bert Hunter:  Yeah, but there's the volume. Yeah, and that and that is the trade. That's the trade off, yeah.

Jigar Shah:  Any thoughts on that, Todd?

Todd Parker:  Yeah, we've prided ourselves on our contract network over the years, that is really the sales team for Michigan Saves, there's three in the house where they can sell it. And, and when we were designed, we intentionally designed to have a loan application process that would provide that immediate decision to the customer, so they can make that decision right then and there in the home, sign the contract with the contractor, and move forward, right. Really made it very simple and easy and affordable. What we're discovering though that is, we're locked out of a certain part of the market and that's—the HVAC industry is growing, with their service platforms, and there's financing products embedded into those service platforms that we don't have access to. So, we find ourselves really spending a lot of time to develop strong relationships with our contractors, so they booked us first and the rates in terms that we offer rather than higher rates and terms that may be available through their service platforms.

Jigar Shah:  Any final thoughts from you, Doug, on, you know, your business and the thoughts and, you know, how this report, you know, maybe leads to more work that we have to do here at DOE that helps serve this customer class?

Doug Coward:  I guess I'm extremely confident that, you know, SELF and other green banks across the country can prudently deploy billions of dollars, you know, of additional clean energy financing, and _____ underserved communities, but I think the primary concern I have is whether these organizations have sufficient, like, organizational capacity, you know, to originate, underwrite, project manage, and service these loans. So I really feel like SEED grants and zero cost capital, similar to what the CDFI program provides annually, can be significant in helping us leverage private, you know, and philanthropic capital, and it would obviously help us, you know, scale proven and effective programs, and therefore accelerate deployment of clean energy resources in LMI communities. So I think, by working with green banks, government entities can leverage significant outside expertise and resources. Because I look at green banks as essentially an implementation tool for local governments, who often establish, you know, lofty clean energy goals, but they don't have the specific financing programs needed to actually achieve these goals, you know. I feel like green banks are a conduit that kind of funnels these global and national resources into our partnering communities and jurisdictions. 

So, I would just close with a couple of specific recommendations to help advance the Biden Administration's Justice 40 goals. I would say, pas the National Climate Bank Act, which I think is in the third piece of the Infrastructure Bill to help seed and scale existing green banks, create a climate equity carve out in the annual CDFI program, much like they do for people with disabilities. That would help seed and scale existing green CDFIs and hopefully incentivize other CDFIs to enter into this space. And then, lastly, I would just suggest that we see whatever we can do to knock down silos that are preventing the convergence of assorted grants like CDBG Program or others with low-cost capital from green banks, so that we can better serve the low income homeowners. You know, some LMI homeowners need grants. Others have the ability to pay and then there's many low-income homeowners that are straddling that line, and so, if we could combine small grant with some financing, we would be able to further penetrate the low income markets.

Jigar Shah:  Thanks for those very specific recommendations. Adair, you've already received $8.3 billion worth of requests ______, small business credit program. You know, any final thoughts from you as you ponder the report, and you know, and answer where we're headed?

Adair Morse:  Just quickly, I know, one of my other roles is tending to climate initiatives generally and Treasury and we've just had a forum from the State and Local Finances Office in Treasury with leadership and state and local governments, and I just wanna—I was sitting listening to this interesting panel and thinking, the state and local governments, particularly, the you know the, the smaller, the local city, county governments are, you know, they're facing the need to do investment for and having climate action plans. And as we think about the private sector here and households and small businesses and other, combining efforts with some of the agendas and supporting state and local governments, as they move forward with their climate action plans with financing that also supports the community households and small businesses, I feel like we have more to go there and we should support efforts on both realms to bring in the partners of the financial institutions to talk to both parties. Thanks, Jigar. Appreciate it.

Jigar Shah:  Our, my pleasure. Joe, any final words from you? I know that, you know, OCC regulator banks are buying up a lot of this paper. Well, if there's _____ business, they've got a lot of excess liquidity and they—this is a great place to put it, and you know, I'm curious, you know, what we might be able to do to, you know, to make sure that folks are making good decisions and doing more of it if they feel comfortable, you know, how we might be able to support everybody with all this data?

Joseph A Smith:  Jigar, I go to the core mission of the agency and what our expectations are of our banks right. One of the greatest things that we want to make sure of is that we continue to be supportive of providing, you know, lending opportunities to consumers and communities as a whole. I mean, it's not just the consumers, it's the communities, and that's one thing that we try and be focused on with a lot of our views of how our banks are operating, obviously. So, I guess—and that's even in the scope not just of homeownership but of course home improvements, and our banks are of course lending in many different spaces, and energy efficiency is obviously one of key interest as the comptroller's noted in many of his comments publicly—the acting comptroller, excuse me. 

But you know, one of the things that, and I go back to it is, we want to make sure that the banks are providing the appropriate and adequate financial services to everybody, but making sure that it's fair and that it's equitable, and that it's, you know, the borrowers are not put in a harmful situation. So the things that I would always, always, always encourage is, what can we do to make sure the borrowers are educated about their financial responsibilities when they go into these loans, right? Because at the end of the day, we want to make sure they're not put in a bad situation. I mean, look what's being done here. I mean, tremendous lending opportunities, delinquency and loss rates that are right, frankly, I mean they're remarkable I think they're great. You know, how can we continue to promote that and I think you know and at a cost level that is still obviously making money or giving a yield to the institutions that are doing it. So let's continue with what we're doing but let's see what we can do to expand the horizon. 

Let's try and market this a little bit more so that, you know, we get greater interest, we get greater depth. There's greater comfort and investing and systems to capture more information about these. And now we start getting into that positive momentum of getting increased capital back into the space, not just from the from our banks—that's important—but from outside sources, the private capital, hedge funds. You know when you have Wall Street investors that are coming in and looking at capital structures from the AAAs all the way down to the equity pieces. So those are the three things we want to make sure this is more fulsome as possible, at the end of day.

Jigar Shah:  Thanks, Joe. Well, you know, I really want to thank everybody for their time today. Invite you to read the 'Long Term Performance of Energy Efficiency Loan Portfolios' and stay connected with DOE and the U.S. government. I do think we're heading into a place where you will see over $5 billion a month going into this paper. And as some of our panelists have talked about, there's a right way to do it and that's a right way to do it. And I think you know, having these kinds of conversations are going to be critical to making sure we have great outcomes for everybody. Thank you for your time today.