Congress takes on "predatory" PACE loans
April 6th, 2017
The rules surrounding energy retrofit loans, which have engendered a great deal of divisivenessÂ over the last few years, could be about to change, as both houses of Congress are set to consider changes to the rule for loans created by the Property Assessed Clean Energy program.
The loans, also called PACE loans, allow homeowners to obtain financing to make improvements to their homes to increase the homeÂ’s energy efficiency. PACE loans are often used to add solar panels to a home.
Under programs like PACE, single-family energy retrofit financing programs can be structured to make loans through the homeownerÂ’s property tax assessment and require that borrowers repay their loans as part of their property tax bill.
But the program is shrouded in controversy because in some states, the PACE liens are given super priority status above the homeÂ’s mortgage, which many in the mortgage business take serious issue with.
And beyond that, some, including prominent members of Congress, consider the PACE program to be Â“predatory,Â” and say that some PACE lenders Â“trickÂ” homeowners into taking out the loans.
And now, some of those same members of Congress are pushing for changes to the rules for PACE loans to ensure that the homeowner is fully aware of the nature of the program before agreeing to the loan.
In a seemingly rare moment of bipartisanship, a group of three Republican senators, one Republican congressman, and one Democratic congressman introduced companion bills in both houses that would bring PACE loans under the Truth in Lending Act.
Specifically, the bill would amend the Truth in Lending Act to require a full TILA disclosure of the loan details and terms, as is required now with mortgage loans.
The bill, titled the Protecting Americans from Credit Exploitation Act (or PACE Act), was introduced this week in the Senate by Sens. Tom Cotton, R-Ark.; Marco Rubio, R-Florida; and John Boozman, R-Ark.; and in the House of Representatives by Reps. Brad Sherman, D-Calif.; and Ed Royce, R-Calif.
As ShermanÂ’s office notes, the bill would ensure that ensure PACE lenders are subject to the Â“same basic disclosure requirements that apply to traditional lenders, including providing to consumers the annual percentage rate, a schedule of payments, and the total cost of the loan.Â”
Under the billÂ’s stipulations, homeowners will also be notified that they are taking a lien on their home.
PACE loans gained in popularity under the Obama administration, which oversaw various changes to Federal Housing Administration
rules designed to make PACE loans more appealing to borrowers and lenders.
Unsurprisingly, Sherman speaks of the PACE program in slightly more positive terms than his Republican counterparts.
Â“PACE programs provide an important source of financing for consumers looking to make energy-efficient changes to their homes,Â” Sherman said in a statement about the bill.Â
Â“But the current process presents homeowners with many challenges and can result in homeowners being misled about the terms of their loan,Â” Sherman continued.Â Â“We must ensure that homeowners concerned with promoting energy efficiency, conservation, ...Â