Two new bills have been recently introduced in California that will protect homeowners with ‘green’ energy improvements on their properties that have been financed through the Property Assessed Clean Energy (PACE) loan program.
PACE is a type of mortgage product that can be used to finance energy-efficient and renewable energy home improvements on private property, such as energy-efficient windows, water heaters, and solar panels. These programs allow homeowners to finance various eco-friendly improvements by having an assessment conducted on their property.
Through this program, governments at the state and local level provide homeowners with as much as a 20-year loan to pay for their energy-efficient improvements, which can be structured to create loans through property tax assessments. Borrowers would then be required to pay back their loans as part of their property tax bill.
Once a PACE loan has been issued, tax liens are then attached to the property. Should the property sell any time before the PACE loan is fully repaid, the loan can be transferred to the buyer.
This is where the controversy with PACE loans lies, as these liens are often given priority over the mortgage of a home. In addition, many lenders who issue these loans don’t follow protocol when underwriting to make sure that homeowners are able to pay them off. Not only that, the terms and conditions of these specialized loans are often not fully or adequately explained to borrowers.
PACE loan programs certainly offer a critical source of financing for homeowners seeking to improve the energy efficiency of their homes, but the way the process has been conducted up to now puts homeowners in a precarious position to potentially be deluded about the terms and conditions of their loan. Critics of such a process want to ensure that these homeowners are provided with the necessary tools to make an informed decision.
The two companion bills – Senate bill S. 838 and House bill H.R. 1958, both named the Protecting Americans from Credit Entanglements Act of 2017 – will make PACE loans subject to federal mortgage rules and regulations. In particular, they’ll be subject to the recently enacted Truth-in-Lending-Act’s (TILA) disclosure requirements. This will provide homeowners with a three-day right of rescission, as well as adequate notification that they cannot sell or refinance without first paying off their PACE loan.
Under these regulations, borrowers will have the distinct advantage of having all pertinent details of their PACE loan revealed to them in a clear and concise manner, including disclosure of the annual percentage rate (APR), the entire cost of the loan, and the fact that a lien will be placed on their properties.
Considering the fact that PACE loans are mortgage-related financing products, there’s no reason why they shouldn’t be subject to federal mortgage financing regulations like other loan products are.
According to The California Association of Realtors (CAR), the use of PACE liens on properties has increased more in California compared to any other state. Such lien placement has long had deficient oversight in the industry, and a lack of federal regulatory supervision can subject unsuspecting borrowers to predatory interest rates and fees if they’re unaware of the costs and conditions associated with such loan products.
As such, CAR executives commend those behind the introduction of the new bills to protect homeowners in California, which include Representative Brad Sherman and Edward Royce, as well as Senators Tom Cotton, Marco Rubio, and John Boozman.
Such regulatory oversight will allow the Consumer Financial Protection Bureau to keep tabs on companies that sell PACE loans and continue to protect consumers from sketchy lending tactics.