Recent comments from HUD Secretary Ben Carson struck a sour note for supporters of the PACE loan program, through which thousands of homeowners and businesses have made energy-efficient improvements to their properties. Just last year, in an effort to boost the program, the FHA, under the Obama Administration, said it would back mortgages on homes encumbered by PACE loans. But earlier this month, Carson said that the new administration is “very, very amenable to adjusting that policy.” The comments suggest a clear willingness to reverse the FHA policy—and beyond that, signal an existential threat to a well-intentioned program.
PACE was conceived in the wake of the credit crisis as a way to put contractors to work while also serving clean-energy goals. It offers homeowners financing for solar panels, energy-efficient windows, and other eco-friendly upgrades with no upfront cost. But nothing comes for free; a lien is placed on the home, and the homeowners repay it through a property tax assessment. (The full name of the program is Property-Assessed Clean Energy program.) PACE is not a federal program, but instead a creature of state and local laws—currently enacted in over 30 different states. Nonetheless, the Obama administration encouraged PACE’s growth, issuing the now-threatened FHA policy (allowing FHA to back mortgages on homes with PACE loans, as long as the PACE lien is subordinate to the mortgage) and also making PACE available to veterans through the VA Home Loan Guaranty.
It hasn’t been all roses. Along with the good—creating thousands of jobs and removing as many CO2 emissions as produced by hundreds of thousands of SUVs in one year, according to Renovate America, the largest provider of PACE loans—there’s been criticism. Detractors make claims of inadequate disclosures, high interest rates, and predatory lending tactics. They also note that PACE loans make homes more difficult to market by saddling them with liens and assessments. Class actions are now pending against PACE loan providers, including one accusing Renovate America of overcharging “low and middle income house owners at nearly every step of the process.”
One lifeline for the PACE program is a corrective bill, adding consumer protections, that has been referred to the House Committee on Financial Services. It would require PACE lenders to disclose to borrowers the terms of their PACE loan, including annual percentage rate, scheduled payments and total cost of the loan. It would also require lenders to clearly disclose to borrowers that PACE loans will result as a lien on their properties. A similar bill has been introduced in the Senate.
Such legislative action could increase public confidence in PACE and facilitate its growth. Any realistic assessment, however, must conclude that PACE’s prospects have never been so uncertain. The current administration has been eager to roll back environmental protections, and to contradict any policies pursued by the Obama administration—which could make PACE a tempting target on two different fronts. Against that background, Secretary Carson’s comments are hardly surprising. More troubling is the possibility that the current administration may attempt to stall the bills, which have been introduced by Republicans (in the Senate) and on a bi-partisan basis in the House. The absence of consumer protection legislation will likely foster litigation, and leave PACE open to the bad acts of a few that have led to the great majority of criticisms against it.
It would be unfortunate if uncertainty and the prospect of litigation curtailed expansion of a program that, if done properly, could greatly benefit people and the planet, while serving important public policy goals.