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
In the event of a CPACE payment default, what collection mechanism is typically used?
Answer: The same tax lien enforcement process used for delinquent property taxes
CPACE assessments are collected through the property tax system, meaning default triggers the same enforcement remedies as delinquent property taxes, including potential tax sale.
What is an 'independent technical review' (ITR) in the CPACE underwriting process?
Answer: A third-party engineering evaluation of project design, costs, and savings projections
An ITR is performed by an independent engineering firm to objectively verify that project designs are sound, costs are reasonable, and energy savings projections are credible.
Why is an energy audit critical to the CPACE underwriting process?
Answer: It provides baseline consumption data and projected savings that underwriters rely on to assess project viability
The energy audit supplies the essential data underwriters need to evaluate whether the proposed improvements will generate sufficient savings to support the CPACE investment.
What does 'capital stacking' mean in a CPACE financing context?
Answer: Combining CPACE financing with other sources such as equity, traditional debt, and tax incentives
Capital stacking combines multiple financing sources, with CPACE often filling a mezzanine role alongside equity, first mortgage debt, and available incentives to optimize project economics.
What is a 'special assessment district' in relation to CPACE financing?
Answer: A defined governmental area where authorities levy special charges on properties for specific public purposes
CPACE programs use special assessment districts as the legal framework to place the CPACE charge on the property's tax bill, granting it the priority and enforceability of a tax lien.
Which statement best distinguishes CPACE underwriting from traditional commercial mortgage underwriting?
Answer: CPACE underwriting prioritizes property equity and project viability over the borrower's personal creditworthiness
Because CPACE is secured by a property lien collected through the tax system, underwriters focus on property value and project economics rather than the owner's personal credit profile.
What is the primary purpose of a 'consent to assignment' clause in a CPACE transaction?
Answer: To permit the CPACE capital provider to sell or transfer the assessment interest to another investor
A consent to assignment enables the capital provider to transfer their interest in the CPACE assessment to secondary market investors, which is essential for program liquidity and scalability.