MBA, Trade Groups Offer Support for PACE Bills

Mike Sorohan msorohan@mba.org

April 25, 2017

More than two dozen industry trade groups joined the Mortgage Bankers Association in letters yesterday to support legislation that would modify consumer protection requirements for Property Assessed Clean Energy loans, also known as PACE loans.

The identical bills are S. 838, introduced by Sens. John Boozman, R-Ark.; Tom Cotton, R-Ark., and Marco Rubio, R-Fla.; and H.R.1958, introduced by Reps. Brad Sherman, D-Calif., and Ed Royce, R-Calif. Both bills are titled the Protecting Americans from Credit Entanglements Act of 2017.

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 loans. Currently, there is no standardized rate or fee disclosure required for PACE loans.

The bills support concerns by MBA and other industry groups that residential PACE loans are a form of mortgage financing and should subject to federal consumer protection requirements. The bills put such loans under the same Truth in Lending Act consumer protections required of other mortgage products.

"Although PACE loan obligations have all the attributes of a mortgage product, they are not subject to federal consumer protection requirements--as this alternative financing structure has been misclassified as a tax assessment rather than a loan," the letters note. "Consequently, a standardized, comprehensive disclosure framework does not exist for PACE loans."

Moreover, the letters said, there are no requirements for an assessment of a borrower's income, credit history, outstanding credit obligations or expected monthly payments in connection with PACE products. Instead, PACE financing today is often based on a borrower's equity in their property and their mortgage and property tax payment history, rather than on their true ability to repay their financial debt.

"PACE loan interest rates--typically between eight and twelve percent--are exponentially higher than traditional mortgage products and other available financing options, despite the fact that they hold the same priority position as unpaid property taxes," the letters said. "Saleability issues also exist for homes encumbered by a PACE loan, and consumers are complaining...about a lack of real understanding over what their PACE loan terms entail."

The letters further noted PACE loan consumer protections currently vary from state-to-state, municipality-to-municipality and do not treat PACE loans like mortgage financing products.

"PACE loans are--in substance--consumer loans secured by real property and should be subject to federal consumer protection requirements, not dependent on a patchwork of limited or non-existent state/municipal laws that do not adequately protect homeowners," the letters said.

Joining MBA in the letters: American Bankers Association; American Land Title Association; Appraisal Institute; Arkansas Land Title Association; California Association of Realtors; California Bankers Association; California Credit Union League; California Land Title Association; California Mortgage Bankers Association; Connecticut Mortgage Bankers Association; Credit Union National Association; Florida Land Title Association; Housing Policy Council of the Financial Services Roundtable; Independent Community Bankers of America; Missouri Land Title Association; Montana Land Title Association; Mortgage Bankers Association of Arkansas; Mortgage Bankers Association of Florida; Mortgage Bankers Association of Missouri; National Association of Federally Insured Credit Unions; National Association of Hispanic Real Estate Professionals; National Association of Home Builders; National Association of Real Estate Brokers; National Association of Realtors; New England Land Title Association; Real Estate Service Providers Council; and The Realty Alliance.

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