Originations and Issuances, by the Numbers
$3.7 billion has been advanced to homeowners under residential Property Assessed Clean Energy (R-PACE). Additionally, nearly $500 million has been advanced for commercial PACE (C-PACE) projects. Although R-PACE currently accounts for just .03% of the $12.8 trillion in household debt, it is one of the fastest growing sources of consumer credit and expected to double within the next year.
Through May 2017, the cumulative issuance of R-PACE loan securitizations between Renovate America, Ygrene, and Renew Financial reached $3.4 billion, up from $2.7 billion through December 2016 and $1.03 billion through December 2015.
Performance and Practice
PACE bonds have been attractive to investors due to relatively high yields, high credit ratings and positive impact of PACE projects on the environment, but there are issues both on the consumer side, in the sale of eco-friendly projects funded through PACE loans, and on the investor side, in the way performance data is collected and reported.
Reportedly, contractors, plumbers and others have recommended PACE funded projects to borrowers regardless of credit in order to create work for themselves. Consequently, low-credit borrowers are receiving PACE loans and defaults are on the rise. Participants have not heavily considered creditworthiness of homeowners as advances are repaid as a tax assessment on real property.
Limited data from a few California counties who collect default data showed the default rate of a certain data pool rose to 1.6% this tax year versus .9% in the previous tax year.
Issues of disclosure to consumers and transparency to investors are bound to create a turning point and push PACE participants to modify their practices. Reliance on municipalities to collect default data has reportedly created knowledge gaps and insufficient historical information needed to predict future performance. Going forward there will be a greater focus on the disclosures made to homeowners regarding their obligations to repay PACE financing, better monitoring by municipalities of the effect on citizens and potentially increased demands by investors regarding performance data.