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Groups that represent mortgage lenders and consumers are welcoming new federal legislation aimed at better protecting homeowners who take out special loans to install solar panels, improve energy efficiency or prepare their buildings for disasters.
But strong consumer protections for Property Assessed Clean Energy (PACE) residential loans still give PACE lenders a “super lien,” which can create problems for homeowners if the loan isn’t paid off when they want to sell or refinance their properties, the groups said.
A final rule announced by the Consumer Financial Protection Bureau (CFPB) on Tuesday requires PACE lenders to evaluate borrowers’ ability to repay, and provide comprehensive disclosures to help homeowners compare the cost of PACE loans to other types of financing.
Rohit Chopra
“Today’s rule prevents unscrupulous companies and sellers from luring homeowners into low-cost loans based on false promises of energy savings,” CFPB Director Rohit Chopra said in a statement. “Homeowners should know how much they are paying when they put their homes and their futures on the line.”
The new law, which won’t take effect until March 1, 2026, was approved by Congress as part of the Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018.
The rules issued by the CFPB and other federal agencies after the election could come under fire, with top members of the House Financial Services Committee on Wednesday warning of “conclusive rulemaking” in the final weeks of the Biden administration.
In the letter of Dec. 16 to the CFPB, House Finance Committee Chairman Patrick McHenry (R-North Carolina) and Vice Chairman French Hill (R-Arkansas) warned Chopra that the Congressional Review Act (CRA) “authorizes Congress to disapprove regulations, including those finalized recently of Congress. “
“The financial system, its institutions, consumers, and the CFPB itself do not benefit from last-minute regulatory efforts,” the Republican lawmakers wrote.
In releasing a proposed rule governing PACE underwriting for public comment last year, the CFPB published a 91-page report detailing problems with PACE loan programs in states including California, Florida and Missouri.
PACE loans are repaid with the homeowner’s property taxes, and the CFPB report found borrowers are paying interest rates that are “significantly higher” than standard home loans or mortgages. The CFPB concluded that PACE loans increase homeowners’ property tax bills by about $2,700 a year, and increase the risk that they will have trouble making their mortgage payments.
The trade association that supports PACE financing, PACENation, released a statement saying it has “grave concerns” about the new law. In addition to questioning the CFPB’s authority to regulate PACE loans, the group alleged that the bureau “failed to adequately consider the positive developments in the PACE industry that have occurred since the rule was drafted.”
A recent paper by researchers at the Yale School of Management and the University of North Carolina at Chapel Hill, for example, concluded that PACE lenders are “expanding access to mortgages, showing improved recovery rates despite PACE’s high ranking. Overall, the adoption of PACE increases local income while improving the climate protection of the housing stock. “
PACE loans are typically financed by bond issues authorized by local governments but are often offered to homeowners by private lenders who may partner with home improvement contractors to market the loan to buyers.
Since many homeowners take out PACE loans with repayment terms of 20 years or longer, the loan can interfere with selling the home or refinancing an existing mortgage.
That’s because PACE appraisals are secured by bonds that, depending on the state, are often higher than other mortgages in the area. Since the PACE assessment is tied to the building, not the property owner, the responsibility to pay it back remains with the land when the building is foreclosed on or sold.
In a joint statement Tuesday, groups including the Mortgage Bankers Association (MBA), the National Consumer Law Center (NCLC), and the Housing Policy Council welcomed the new CFPB rule, but complained that PACE accounts will continue to be a problem for homeowners and lenders.
“The CFPB’s final rule is an important step to protect consumers and reduce mortgage fraud by ensuring that consumers are both informed of the obligations they are signing up for when they take out a PACE loan and that they have the ability to repay their loan,” the groups said.
But the law “doesn’t change the fact that PACE loans are given a ‘priority priority’ through the tax assessment process, hurting the housing market and lenders who may not be able to refinance or recoup their investment.” time to sell due to the significant nature of the PACE bond. We will continue to work together to address challenges like these and any that may arise during the implementation of the law in states with PACE programs.”
California was the first state to launch a PACE program in 2008, and from 2015 to 2023, $9.12 billion in PACE loans have helped finance the development of 371,000 homes, according to PACENation.
Editor’s Note: This story has been updated to note that top Republican members of the Financial Services Committee this week warned federal agencies of “completing partial rulemaking” in the final weeks of the Biden administration.
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