PACE Energy-Efficiency Loans Come Under Scrutiny

The current issue of Habitat introduces New York City co-op boards to an innovative way to finance energy-efficient improvements to their buildings known as Property Assessed Clean Energy (PACE) loans. These loans require no up-front payment, and they’re repaid through an assessment on the building’s property taxes. This cost is, in theory, covered by long-term savings on energy costs. It’s a win-win for the co-op and the planet. 

The popular program is now operating in 33 states, and a bill before the city council seeks to make it available in New York City. Homeowners nationwide have taken out more than 200,000 PACE loans since 2010, financing projects worth more than $5 billion. 

But PACE has suddenly hit a snag. 

The Consumer Financial Protection Bureau (CFPB) has announced that it’s seeking public comments to prepare for a new regulation for the government-supported program, which would treat private PACE lenders more like traditional mortgage lenders, the Wall Street Journal reports. 

PACE lenders are not currently required to ensure that borrowers are able to repay the loans, which the new CFPB regulation would aim to change. The unique financing structure of PACE, critics contend, can result in unexpected payments on tax bills for many borrowers. 

Not so, according to supporters. “Because you amortize the cost of the project over a longer period, the energy savings are likely to outweigh the cost of servicing the debt,” Robert Fischman of Energize NY, the financing arm of the nonprofit Energy Improvement Corp., tells Habitat. 

The call for stricter regulation enjoys something almost unheard-of these days: bipartisan support. Senators Catherine Cortez Masto, a Nevada Democrat, and Tom Cotton, an Arizona Republican, wrote to the CFPB last week: “PACE home improvements for many homeowners, especially low- and moderate-income families, are far from affordable, and homeowners lack proper disclosures that reflect the true cost of the improvements. We urge the Bureau to prioritize issuing this rule-making.”