Solar Panel Updates
Effective immediately, NewRez has updated conventional solar panel guidelines to align with Fannie Mae guidance announced in Selling Guide Announcement (SEL-2020-04). This clarifies underwriting and appraisal requirements based on the type of financing structure of the panels and defines when the value of the panels must be included in the LTV/CLTV calculation.
Borrower Owned Panels, Financed and Collateralized
For borrower owned panels that are financed and collateralized, two scenarios are provided:
- Panels are collateral for separate debt used to purchase the panels and are a fixture to the real estate due to a UCC fixture filing in the real estate records
- Panels are collateral for separate (non-mortgage) debt used to purchase the panels that do not appear on title
For panels that are collateral for separate debt used to purchase the panels and are a fixture to the real estate due to a UCC fixture filing:
- Include the debt in the DTI
- Instruct the appraiser to consider the panels in the value of the property, if the panels cannot be repossessed for defaulting on the debt
- Include in other debt secured by the real estate in the CLTV ratio calculation
- The UCC filing must either be subordinated or terminated
For panels that are collateral for separate (non-mortgage) debt used to purchase the panels that do not appear on title:
- Include the debt in the DTI
- Instruct the appraiser not to provide any contributory value
- Do not include in the LTV/CLTV calculation
Properties with Panels Leased or Covered by a Power Purchase Agreement
Requirements have been clarified and reorganized for solar panels that are leased from or owned by a third party under a power purchase agreement or other similar lease arrangement, and include:
- Exclude the debt from the DTI if the lease is structured to:
- Provide delivery of a specific amount of energy at a fixed payment during a given period, and
- Have a production guarantee that compensates the borrower on a prorated basis in the event the solar panels fail to meet the energy output required for in the lease for that period, or
- The payment is calculated solely based on the energy produced.
- The appraiser must not provide any contributory value
- Do not include in the LTV/CLTV calculation
- Property must maintain access to an alternate source of electric power that meets community standards and can be verified by the appraisal or utility bills
- Must indicate that any damage that occurs as a result of installation, malfunction, manufacturing defect, or the removal of the solar panels is the responsibility of the owner of the equipment and the owner must be obligated to repair the damage and return the improvements to their original or prior condition
- Must indicate that in the event of foreclosure, the lender or assignee has the discretion to:
- Terminate the lease/agreement and require the third-party owner to remove the equipment;
- Become, without payment of any transfer or similar fee, the beneficiary of the borrower’s lease/agreement with the third party; or
- Enter into a new lease/agreement with the third party, under terms no less favorable than the prior owner.
- Confirm owner of solar panels is not named loss payee (or named insured) on property owner’s insurance policy
Solar Panel Checklist
A new Solar Panel Checklist has been created and all loan types are now included on a single version. It combines the two previous versions, one which was for standard loans and one for Streamline loans and IRRRLs.
Along with the borrower owned panels that are financed and collateralized, solar panels that are leased from or owned by a third party under a power purchase agreement or other similar lease arrangement are included. Requirements have been clarified and reorganized.
Please reference the Forms Library for the changes outlined in this announcement.