Bill Would Enhance Consumer Protections for PACE Loans
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The Appraisal Institute joined more than two dozen other real estate organizations Monday in expressing support for federal legislation that would enhance consumer protection requirements for Property Assessed Clean Energy loans, known as PACE loans.
The nation's largest professional association of real estate appraisers, the Appraisal Institute signed a letter to the U.S. Senate and House sponsors of S. 838 and H.R. 1958, the Protecting Americans from Credit Entanglements Act of 2017. Other trade and professional associations signing the letter represent real estate professionals, homebuilders, and mortgage lenders and servicers.
PACE loans are mortgage financing and, the groups say, should be subject to federal consumer protection requirements. The bill would provide these loans the same Truth in Lending Act consumer protections required of other mortgage products, including the Consumer Financial Protection Bureau's "Ability-to-Repay" and "Know Before You Owe" rules and Home Ownership and Equity Protection Act standards.
PACE loans are -- in substance -- consumer loans secured by real property and should be subject to federal consumer protection requirements, not dependent on a patchwork of limited or non-existent state/municipal laws that do not adequately protect homeowners, the letter said.
PACE loans were developed to help finance energy-efficient retrofits on real property, such as solar panels and energy-efficient appliances and windows. While PACE program specifics vary by state and municipality, these loans usually are initiated by the private companies approving contractors to make these improvements, with financing from proceeds raised by issuing municipal revenue bonds. The bonds are secured by the payments on the PACE loan obligation; the loan payments are added to the borrower's property tax bill and then paid through property tax installments, normally over 15 or 20 years. The outstanding PACE loan obligation then runs with the property (not the borrower) going forward.
Although PACE loan obligations have all the attributes of a mortgage product, they are not subject to federal consumer protection requirements, as this alternative financing structure has been misclassified as a tax assessment rather than a loan, the letter said.
Consequently, a standardized, comprehensive disclosure framework does not exist for PACE loans. Moreover, there are no requirements for an assessment of a borrower's income, credit history, outstanding credit obligations, or expected monthly payments in connection with PACE products. Instead, PACE financing today is often based on borrowers' equity in their property and their mortgage and property tax payment history, rather than on their true ability to repay their financial debt.
Besides the Appraisal Institute, the letter was signed by 27 groups:
- American Bankers Association
- American Land Title Association
- Arkansas Land Title Association
- California Association of REALTORS
- California Bankers Association
- California Credit Union League
- California Land Title Association
- California Mortgage Bankers Association
- Connecticut Mortgage Bankers Association
- Credit Union National Association
- Florida Land Title Association
- Housing Policy Council of the Financial Services Roundtable
- Independent Community Bankers of America
- Missouri Land Title Association
- Montana Land Title Association
- Mortgage Bankers Association
- Mortgage Bankers Association of Arkansas
- Mortgage Bankers Association of Florida
- Mortgage Bankers Association of Missouri
- National Association of Federally Insured Credit Unions
- National Association of Hispanic Real Estate Professionals
- National Association of Home Builders
- National Association of Real Estate Brokers
- National Association of REALTORS
- New England Land Title Association
- Real Estate Service Providers Council
- The Realty Alliance
The real estate groups addressed their letter to the bill's sponsors: Sens. Tom Cotton, R-Ark., John Boozman, R-Ark., and Marco Rubio, R-Fla., and Reps. Brad Sherman, D-Calif., and Edward Royce, R-Calif.
S. 838 was referred to the Committee on Banking, Housing, and Urban Affairs on April 5. H.R. 1958 was referred to the House Committee on Financial Services on