MBA, Trade Groups Cite Strong Concerns with PACE Programs

The Mortgage Bankers Association and nearly a dozen industry trade groups told Federal Housing Finance Agency Director Mark Calabria that Property Assessed Clean Energy programs—known as PACE programs—pose safety and soundness issues for the real estate finance industry.

The letter, in response to a FHFA Request for Information on PACE programs, which proposes pricing penalties or stricter underwriting standards for all loans in jurisdictions that allow PACE programs. The letter said these measures would be “costly and ineffective.” Additionally, the letter objects to the structure of PACE programs due to their super-lien priority status, structure as a tax obligation and lack of consumer protections. The letter said FHFA, along with other regulators, industry associations and consumer groups, should continue to advocate for improved policies at the state and local levels to address the underlying problems with PACE programs.

“Our organizations recognize the commitment of communities across the nation to reduce energy consumption and improve energy efficiency in residential and commercial properties and the need for policymakers, community leaders and consumers to pursue and promote energy sustainability,” the letter said. “The push to increase awareness and utilization of more energy efficient products and practices, however, must also protect consumers from unsafe and unaffordable arrangements, such as PACE financing programs, that pose a risk to consumers and communities alike. Documented experiences with these highly unregulated loans and the companies offering them is troubling, and consumer abuses have been reported widely.” 

The letter noted PACE financing is structured differently from traditional financing in that homeowners are able to finance energy efficient home improvements, such as solar panels, insulation, and window upgrades, through special property tax assessments rather than through loans, installment contracts, or home equity lines of credit. “Many of the problems with PACE financing are the result of decisions to treat it differently from traditional mortgage financing,” the letter said. “Unique features such as tax lien treatment, specific project eligibility guidelines and repayment through tax bills do not change the fundamental character of PACE financing—in practice, if not in the law, PACE financing structures are mortgages. As such, the need for consumer protections is similar to that associated with traditional mortgage financing. Whether through a tax sale or a foreclosure, the result of homeowners’ inability to repay is the same—they lose their homes.”

MBA and the trade groups said the FHFA RFI, by restricting access to low down payment mortgage credit, would penalize even more consumers, rather than address the problem at hand. “Further, without a substantial and perpetual information campaign from federal regulators such as FHFA and the Consumer Financial Protection Bureau (CFPB), we believe that additional reporting and disclosure requirements would have marginal impact, confuse borrowers and create undue regulatory burden on parties not responsible for this problematic practice.”

Instead, the letter said, FHFA should continue to work with industry and consumer advocates to educate state and local lawmakers about the risks of PACE financing, and support wherever possible efforts to establish Ability-to-Repay requirements for PACE lending, create licensing requirements for PACE administrators and contractors, and ensure subordination of PACE liens to mortgages.”

“Our organizations do not…however, support proposals that would arbitrarily and punitively limit access to low down payment mortgage finance credit for consumers who live in jurisdictions where PACE financing is available,” the letter said. “FHFA should encourage the CFPB to finalize its rulemaking on ATR requirements for PACE lending and extend all consumer protection rules that are required in a mortgage transaction to PACE financings.  Our organizations also encourage FHFA to work with state and local leaders to communicate the risks of PACE programs, require licensing of PACE administrators and contractors, and establish clear regulations pertaining to the subordination of PACE liens to mortgages.”

Joining MBA in the letter: the California Mortgage Bankers Association; Credit Union National Association; the  Housing Policy Council; Leading Builders of America; Mortgage Bankers Association of Florida; Mortgage Bankers Association of Missouri; National Association of Federally Insured Credit Unions; National Association of Realtors; Real Estate Services Providers Council Inc.; and U.S. Mortgage Insurers .

The MBA PACE Advocacy Page can be accessed at