Risk Management and Underwriting Flashcards
7 cards from real CPACE practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management and Underwriting flashcards as text
What is a primary concern for mortgage lenders when a property owner seeks CPACE financing?
Answer: The potential impact on their mortgage lien priority
CPACE assessments carry a senior tax lien that can supersede existing mortgage liens, making lien priority a critical concern for mortgage holders.
In CPACE underwriting, what does the loan-to-value (LTV) ratio primarily measure?
Answer: The relationship between the CPACE amount and the property's appraised value
LTV in CPACE measures the total debt including the CPACE assessment against the property's appraised value to ensure sufficient equity cushion.
What is the primary security instrument in a CPACE transaction?
Answer: A special tax assessment lien on the real property
CPACE is secured by a special assessment lien on the real property itself, which gives it its tax-lien priority status and property-based security.
Which of the following best describes 'lender consent' in CPACE financing?
Answer: Permission from existing mortgage holders to allow the CPACE assessment lien
Lender consent is the existing mortgage holder's agreement to permit the CPACE assessment lien on the property, protecting their interests as the first mortgage holder.
What is a 'savings-to-investment ratio' (SIR) used for in CPACE underwriting?
Answer: Measuring whether projected energy savings justify the total investment cost over the project's life
The SIR demonstrates project economic viability by comparing lifetime energy savings to total project cost; a ratio above 1.0 indicates savings exceed costs.
What happens to a CPACE assessment if the property is sold before the assessment term expires?
Answer: The assessment transfers to the new property owner along with the property
CPACE assessments are attached to the property, not the owner, so they transfer automatically to new owners upon sale, which is a distinguishing feature of the program.
Which risk mitigation tool is specifically designed to address energy system underperformance in CPACE projects?
Answer: Energy performance insurance or savings guarantee products
Energy performance insurance and savings guarantees protect investors and property owners against the risk that installed systems fail to deliver projected energy savings.