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Associations representing mortgage lenders and consumers have announced a new proposal aimed at better protecting homeowners who take out special loans to install solar panels, improve energy efficiency, prepare for disasters and more. We welcome the federal regulations.
However, stronger consumer protections for Residential Property Appraised Clean Energy (PACE) loans still give PACE lenders a “super lien,” meaning the loan is repaid when the homeowner wants to sell or refinance the property. This can cause problems if it is not done. said the group.
The final rule released by the Consumer Financial Protection Bureau (CFPB) on Tuesday will require PACE lenders to evaluate a borrower’s ability to repay and will allow homeowners to compare the cost of a PACE loan with other forms of financing. , requiring them to provide more comprehensive disclosures.
Rohit Chopra
“Today’s rules will stop unscrupulous companies and salespeople from luring homeowners into loans they can’t afford based on false promises of energy savings,” CFPB Director Rohit Chopra said in a statement. “Homeowners have the right to know how much they are paying for their home and their financial future.”
The new rules, which won’t go into effect until March 1, 2026, were mandated by Congress as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.
Rules issued by the CFPB and other federal agencies could come under fire after the election, and Republican leaders on the House Financial Services Committee said Wednesday that the last few weeks of the Biden administration will see “any finalization of partisan rulemaking.” ”, he warned against doing so.
In a Dec. 16 letter to the CFPB, House Financial Services Committee Chairman Patrick McHenry (R-NC) and Vice-Chairman French Hill (R-Ark.) (CRA) “authorizes Congress to disapprove rulemakings, including those finalized toward the end of Congress.”
“The financial system, financial institutions, consumers, and the CFPB itself will not benefit from a last-minute partisan rulemaking attempt,” the Republican lawmakers wrote.
In releasing proposed rules governing PACE underwriting for public comment last year, the CFPB released a 91-page report detailing problems with PACE loan programs in states including California, Florida, and Missouri. .
PACE loans are paid back through homeowners’ property taxes, and the CFPB report says borrowers pay interest rates that are “significantly higher” than those on regular mortgages or home equity loans. The CFPB concluded that PACE loans increase homeowners’ property tax burdens by approximately $2,700 per year and increase their risk of difficulty making mortgage payments.
PACENation, the industry group that supports PACE lending, issued a statement saying it had “serious concerns” about the new rules. In addition to questioning the CFPB’s authority to regulate PACE lending, the group argued that the agency “failed to adequately consider the positive developments in the PACE industry that have occurred since the rule was drafted.” .
For example, a recent paper by researchers at the Yale School of Management and the University of North Carolina at Chapel Hill found that PACE lenders are “expanding mortgage credit access, despite the superseniority of PACE liens. “This shows that the recovery value is improving.” Overall, implementing PACE increases local fiscal revenue while improving the weatherization of the housing stock. ”
PACE loans are typically financed by local government-approved bond issues, but are often provided to homeowners by private lenders who partner with home improvement contractors to sell the loans to consumers. will be done.
Because most homeowners have PACE loans with repayment terms of 20 years or more, these loans can prevent you from selling your home or refinancing your existing mortgage.
That’s because PACE appraisals are secured by liens, which, depending on the state, are often superior to other mortgage liens on the property. PACE assessments are tied to the property, not the property owner, so even if the property is foreclosed or sold, the obligation to repay the assessed value remains with the property.
In a joint statement Tuesday, groups such as the Mortgage Bankers Association (MBA), the National Consumer Law Center (NCLC), and the Housing Policy Council welcomed the CFPB’s new rules, but said PACE’s liens would not apply to homeowners. He lamented that this will continue to be a problem for banks and lenders.
“The CFPB’s final rule protects consumers by ensuring that they are informed of their obligations when taking out a PACE loan and that they have the ability to repay the loan. , is an important step towards reducing mortgage arrears,” the group said.
However, this rule “does not change the fact that PACE loans are offered as ‘super liens’ through the tax assessment process, which harms the housing market and borrowers who are unable to refinance or recover their investment in the housing market.” ” Time of sale due to priority status of PACE obligations. We continue to work together to address these challenges and any challenges that may arise during implementation of the rule in states with PACE programs. ”
California was the first state to launch the PACE program in 2008, and from 2015 to 2023, $9.12 billion in PACE loans funded 371,000 home upgrades, according to PACENation. .
Editor’s note: This article notes that this week, Republican leaders on the House Financial Services Committee warned federal agencies against making “partisan rulemaking final decisions” in the final weeks of the Biden administration. Updated to.
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