A set of issues that state and local governments should carefully consider, with the goal of helping them assess and anticipate solutions for some worst case or unfortunate case scenarios as they develop lending programs, are listed in the table below to help state and local governments assess the potential risks of lending products.
General Risk Category | Definition | Potential Resolution |
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Legal Issues/ Failure To Comply With Program Rules | Fraud: Lender partners abuse the loan loss reserve (LLR) fund, drawing on the reserve for loans that have not met the strict definition of default, per the loss reserve agreement. |
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Installation of nonqualified measures: Contractors use funds to install nonenergy efficiency or nonrenewable energy measures. Examples might be the use of funds to install a swimming pool or a residential room addition. |
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Litigation: Poor installations, injuries, or other problems result in a lawsuit against a grantee. |
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Complaints From Borrowers and Consumers | Complaints against contractors: Contractors associated with the program perform substandard work that does not yield energy savings or simply does not work. Contractors carry out the work, but damage the property. |
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Little or No Uptake of Loans | No loans or very few loans are extended to homeowners or businesses: A grantee establishes a loan program, but no loans are made. |
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Poor Lender/ Contractor Participation | Contractor refusal to participate: Contractors find the program too cumbersome because of large amounts of paperwork or higher costs than they would incur outside the program. |
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Lenders refuse to loan: An LLR fund is made available to lenders, but the lenders do not make any loans or make very few loans on the basis of that loss reserve. Lenders may sign up for an LLR program and not make loans, or they may simply decline to sign up for the reserve program. |
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Other | Excessive loan defaults: Loan defaults, while projected to be low, turn out to far exceed projections. |
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