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Crackdown on Predatory Green Loans
The Consumer Financial Protection Bureau has proposed rules forcing a
program that offers loans for energy efficiency upgrades to confirm a
borrower's ability to repay.
Regulators are cracking down on a predatory lending scheme for home
improvement projects that has been advertised for over a decade as a
climate-friendly way to save money.
The Property Assessed Clean Energy (PACE) program was meant to make it
easier for homeowners to install clean-energy technology, such as solar
panels. But many of the projects financed through PACE, which is
administered through private companies, have forced homeowners to
default on their property taxes, or even left them facing foreclosure.
The idea behind PACE, which Joe Biden championed as vice president
<[link removed]>
after the 2008 financial crisis, is sound. A more energy-efficient
dwelling can emit less pollution while bringing down energy bills, but
many homeowners don't have the capital to pay for the improvements up
front. So PACE secures loans with a lien on the property, and homeowners
pay back the cost of equipment, plus interest, on their property tax
bill.
Biden touted the program as a triple win, bringing down pollution,
saving money, and creating green jobs in the construction industry after
the housing crash destroyed demand.
But a report
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published this week from the Consumer Financial Protection Bureau
(CFPB), which used new data on PACE loans, found that over a two-year
span, taking out a PACE loan increased the risk of mortgage delinquency
by about 35 percent.
Borrowers were more likely to live in Black and Hispanic neighborhoods,
the report finds, and PACE loans charged "substantially higher" interest
rates than most home equity loans.
If a homeowner doesn't make the increased payments that show up on
property taxes-which can reach tens of thousands of dollars-she may
lose the home. And a PACE lien is "super-priority," meaning that the
loan must be paid off before any other mortgage.
Along with this week's report, the CFPB has issued a proposed rule
that would require PACE lenders to assess a borrower's ability to
repay.
Local governments authorize PACE financing, collect payments, and are
parties to the agreements. That gives a patina of state authority to the
program. But governments then outsource origination and financing to
private companies, including home improvement contractors that sell the
loans door-to-door, often on behalf of separate loan administrators that
securitize the assets.
"Our proposal is designed to get at not just the lenders, but also these
administrators," a senior CFPB official said on a Monday press call,
referring to companies that securitize PACE loans and sell them on the
secondary market. Among the biggest are Ygrene <[link removed]>,
FortiFi Financial, Home Run Financing, and Renew Financial.
[link removed]
The CFPB's proposed rule, which was required by a 2018 law signed by
President Trump but was never promulgated, could shield at-risk
homeowners from being targeted through the predatory scheme. But the
scandals surrounding PACE also underscore the persistent high cost of
housing electrification, especially when a home-energy overhaul requires
private financing.
New federal funds for clean-energy home improvements in last year's
Inflation Reduction Act include big rebates for technology like solar
panels and heat pumps, some of which are designed to be applied at the
point of sale. But other programs, such as a $27 billion Greenhouse Gas
Reduction Fund
<[link removed]>,
are designed to encourage tapping private lenders to lever up funds.
Clean-energy lenders catering their services to low-income areas are
already seeing a boom in business. Earlier this year, I wrote about
BlocPower, a tech startup that says it can deliver attractive returns to
investors such as Goldman Sachs while also helping residents of
low-income housing save money on their utilities. (It does not guarantee
those savings
<[link removed]>,
however, and Goldman said its profits don't depend on bringing down
energy bills.)
BlocPower has been hired to help decarbonize cities including Denver,
Oakland, and Ithaca, New York. Last month, it inked a deal
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with Cambridge, Massachusetts.
Meanwhile, the pattern of PACE lending is shifting. More than 37 states
have enabled PACE for commercial properties, but residential PACE
borrowers have been concentrated in California and Florida. (The program
originated in Berkeley, California, in 2008.)
The states have used the program for different purposes: In California,
the most common home improvement project was installing solar panels,
according to the CFPB report. In Florida, by contrast, almost 63 percent
of PACE loans went to "disaster-related improvements," with less than 7
percent installing solar panels.
Last October, the Federal Trade Commission and the state of California
sued Ygrene
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over what they termed deceptive and fraudulent marketing practices.
Given the pattern of predatory lending associated with PACE, some
Florida counties have attempted to bar the program. But a judge overrode
local efforts to do so, ruling that a special district created to
administer the program can continue giving out
<[link removed]>loans
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~ LEE HARRIS, STAFF WRITER
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