The Center for Responsible Lending (CRL), along with the Leadership Conference on Civil & Human Rights and NAACP, applauded the U.S. Department of Energy for strengthening its Best Practice Guidelines for Residential PACE Financing in final guidance issued Friday.
The Property Assessed Clean Energy (PACE) program is intended to finance energy efficient home improvements through municipal loans, but low-income homeowners have risked losing their homes to foreclosure through the program because appropriate consumer protections have been absent.
"PACE loans can be dangerous for consumers because of the way they work," said Courtney Robinson, policy counsel for CRL. "PACE providers use the tax assessment process, which means this form of financing is not subject to the same regulation and oversight that applies in normal real estate and home improvement markets. PACE loans can add thousands of dollars per year to a borrower's property tax bill, and a failure to pay a PACE assessment can trigger a foreclosure even if the borrower is otherwise current on their mortgage. We are pleased the Department of Energy has taken steps to mitigate these risks, and state and local governments should be sure to adopt these protections."
The final guidelines include strengthened underwriting requirements, including review of income, existing debt obligations and credit score. They also include improved disclosures, forbearance mechanisms, and cost-effective financing for low-income borrowers.
"While the Department of Energy failed to close a loophole that would have provided one additional protection for consumers, requiring PACE providers to be responsible for contractor misconduct, the guidelines overall improve protections for low-income homeowners," continued Robinson.
"Energy efficiency is important for all homeowners and can ease the costs of living for struggling families," said Wade Henderson, of the Leadership Conference on Civil & Human Rights. "But the PACE program was allowing abuses that have been addressed in the mortgage market to go unchecked, putting low-income homeowners yet again at risk of losing their homes to foreclosure. We thank the Department of Energy for attending to this matter."
"We have seen too many scams in this market going unchecked. These guidelines are necessary and timely. State and local governments behind these programs are obligated to ensure that the financing is safe, cost-effective and affordable, especially for those homeowners who are most vulnerable," said Hilary Shelton, Director of the NAACP Washington Bureau and the Senior Vice President for Policy and Advocacy.