Legislators Introduce Bill to Curb PACE Loan Abuses

Members of the House and Senate introduced legislation aimed at bringing a controversial energy improvement loan program in line with other mortgage loan disclosures.

Sens. Tom Cotton, R-Ark., Marco Rubio, R-Fla., and John Boozman, R-Ark., with Reps. Brad Sherman, D-Calif., and Ed Royce, R-Calif., introduced the Protecting Americans from Credit Exploitation (PACE) Act. The bills (S.838 and H.R. 1958) would require disclosure for Property Assessed Clean Energy (PACE) loans under the Truth In Lending Act on any entity attempting to make PACE loans.

The Mortgage Bankers Association commended the legislation, saying it would strengthen consumer protections from risky financial products and bring PACE loans under federal mortgage financing guidelines.

“While energy efficient home improvements can be beneficial for some homeowners, MBA has significant concerns with the Property Assessed Clean Energy program construct,” said MBA President and CEO David Stevens, CMB. “PACE loans are, in substance, mortgage-related financing and should adhere to federal mortgage financing rules. This legislation will subject PACE loans to the same Truth in Lending Act consumer protections required of other applicable mortgage products. We look forward to continuing to work with Congress on this very important issue.”

PACE loans have gained popularity in recent years, but have also generated controversy. PACE loans are a financing program that allows homeowners to pay for solar panels or other housing improvements, such as air conditioning and window insulation, through a lien paid back through property tax payments. The loans require no underwriting, often have high fees and interest rates (as high as 12 percent) for 20 years for solar panels or other housing improvements that risk obsolescence after just a few years.

Additionally, PACE lenders receive first priority of repayment, in conjunction with property taxes, before mortgage brokers. Currently, there is no standardized rate or fee disclosure required for PACE loans.

Cotton said the legislation would change that. “Residential PACE loans are a scam,” he said. “Predatory green-energy lenders are changing state and local laws to trick seniors into taking out high-interest rate loans for 20 years, along with liens on their homes, for technology that could be obsolete in a few years. Today, these loans are exempt from the same disclosure forms required for other home loans. Our bill will fix this. Requiring disclosure will reduce the advantage that PACE loan sharks have over hard-working Americans. It’s just the accountability we need.”

Rubio agreed with MBA, saying residential PACE loans should have to play by the same rules as other forms of home financing. “Americans deserve clear, straightforward policies from their government, not hidden political favors,” he said. “Our legislation would address this and help provide the transparency necessary to create real consumer choice.”

In support of the bills, the MBA Mortgage Action Alliance (the MBA grassroots advocacy arm) issued a Call to Action yesterday, asking members to contact their senators and representatives to urge them to co-sponsor the legislation (http://action.mba.org/app/write-a-letter?0&engagementId=330313).

“PACE loans are not currently subject to nationwide mortgage financing rules, meaning that a comprehensive underwriting of a borrower’s income, debt and credit history is not being conducted when a PACE loan is originated,” MBA said. “Consumers are reporting a lack of awareness regarding the terms of their PACE loans.”