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Friday, April 26, 2019

Lori Eshoo of NTS on PACE Loans

By MBA Insights Staff
April 8, 2019

Topics:
Lori Eshoo
National Tax Search
PACE Lending

Lori EshooLori Eshoo is President and CEO of National Tax Search, Chicago. She founded National Tax Search in 1997. Under her leadership, NTS has reduced risk and saved lenders and investors millions in potential loss. The company monitors more than $500 billion of total assessed property value at any given time and has more than one million parcels under administration, verifies more than $13 billion in property tax payments annually and processes $7 billion in property tax payments annually. The company has identified more than $153 million in delinquent and sold taxes. Under her direction, Eshoo's team has built a technology platform that streamlines tax, flood and HOA research and payment processes.

MBA INSIGHTS: What are the pros and cons to Property Assessed Clean Energy (PACE) loans?

LORI ESHOO, NATIONAL TAX SEARCH: Pros: PACE loans provide a means where homeowners can make energy saving improvements to their homes. Enhancements such as solar panels, energy efficient windows and appliances, water conservation tools are all positive for both the homeowner, community and global environment.

Cons: the loans are not regulated the same as traditional mortgages and home equity loans. PACE loans are generally initiated by private companies that approve the contactors doing the improvement work. The PACE obligations are then purchased using proceeds raised by the issuance of municipal revenue bonds. These bonds are secured by payments on PACE loan obligations. Then these payments are added to the borrower's property tax bill as an assessment. These are often payments spread over 20 years and end up costing the homeowner significantly more that the cost of the work.

INSIGHTS: What are major issues facing mortgage lenders and servicers with borrowers who also have a PACE loan?

ESHOO: PACE loans represent more risk in the residential market than the commercial market because home buyers tend to be unaware of all the regulations and potential expense associated with a PACE loan. Because PACE financing is not strictly regulated, homeowners can be subject to predatory sales techniques. PACE programs do not follow traditional underwriting such as review of credit history, income, debt to income ratios. In fact, the qualification for these loans is generally based on the equity in the home as well as the mortgage and tax payment history. This makes PACE loans easier to obtain without understanding the associated risks. Such hidden liens bring the risk of the mortgage lender losing first position of the asset to the lending institution of the PACE loan.

The PACE loan follows the asset, not the homeowner. This impacts the foreclosure process as well as the ability for resale of the property. If the PACE loan is not paid off in full, a new buyer would have to assume the payments.

INSIGHTS: How can lenders and servicers find out if a property is subject to a PACE loan lien?

ESHOO: Lenders should engage a comprehensive PACE loan research program that will reveal any PACE liens within the lender's portfolio. Measures should be taken to ensure thorough research of the parcel, agency records and lien documents to identify the PACE loan and any PACE lien on the property. The NTS platform is fully integrated with the lender's system of record, so we will identify and proactively manage risky PACE loans.

INSIGHTS: Do PACE loan guidelines vary from state to state? Are there any states in which the odds are particularly onerous for first mortgage holders?

ESHOO: PACE loans are most prevalent in California, Florida and Missouri, which are super lien states. However, as of May 2018, PACE legislation has been authorized in 34 states across the United States. The structuring, terms and conditions of these loans can vary by state and municipality. These unique differences between states underscore the critical need for professional management of PACE risk. NTS has a database of more than 26,000 taxing agencies and lengthy relationships with nationwide municipalities and assessor offices. Our team members have state specific training and can expertly navigate the research, identification and reporting of PACE loans.

INSIGHTS: Recently passed legislation in Congress gives the Consumer Financial Protection Bureau authority to promulgate new federal rules subjecting PACE loans to stronger consumer protections. In the meantime, what remedies do lenders and servicers have at their disposal to avoid exposure?

ESHOO: PACE loans/liens can be difficult to uncover. Using an experienced property tax reporting firm that specializes in PACE identification and reporting is the best way to reduce risk and avoid exposure. NTS has the experience to mitigate the PACE process for lenders and loan servicers.

INSIGHTS: While it appears that down the road there could be more uniform rules and guidelines concerning PACE loans, what should lenders and servicers be doing now to avoid these risks?

ESHOO: There are three steps you can take to protect your loan/asset from PACE risk:
1. Identify
2. Document
3. Monitor and Report

The level of detail needed depends on the involvement with the asset and the level of liability assumed. NTS can assist every step of the way.

Identify. NTS will research by parcel and determine if a PACE loan exists on the parcel/property. This information will not be identified on a standard title search.

Document. NTS can provide a PACE Certificate with critical data elements that include:
--Parcel number, address, owner name
--Taxing authority name and address
--Most recent assessed value for both land and improvement
--Assessed value prior to PACE for both land and improvement
--PACE re-assessed value by each year the PACE loan existed, including land and improvement
--PACE lien documentation identifying the lien on the property
--When available, provide PACE payoff amounts

Monitor & Report. NTS provides ongoing reporting services so the lender can keep track of the status of the PACE loan. Critical information that NTS can provide on an on-going bases includes:
--PACE special assessments
--Payment activity
--Reporting at each installment due date, per agency
--Delinquent notification

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)

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