By Roy L Hales
There have been some pretty strange “goings on” in Washington since the Republicans took over. Confronted with facts they didn’t like, the new administration came up with the concept of “alternate facts” that are more in line with the way they want people to think. This has gone beyond the White House. With the new Protecting Americans from Credit Exploitation (PACE) Act, three Republican senators apply alternate facts to PACE financing.
Republican Senators Apply Alternate Facts To PACE Financing
In their press release, senators Tom Cotton (R – Arkansas) , John Boozman (R – Arkansas) and Marco Rubio (R – Florida) claim that Property Assessed Clean Energy (PACE) loans are a “scam” that targets low-income and elderly Americans. “The loans require no underwriting, have high fees, and rates of eight to twelve percent for 20 years for solar panels or other housing improvements that may be obsolete in a few years.” Cottons claims, “Predatory green-energy lenders are changing state and local laws.” Boozman states homeowners using this program “risk financial ruin.” To which Rubio adds, “Residential PACE loans should have to play by the same rules as other forms of home financing.”
“This bill basically defines PACE as a mortgage. It says it is a loan, secured by real property, and should be treated as a mortgage. That would force many, if not all, local governments and perhaps contractors, to become mortgage brokers,”says David Gabrielson, Executive Director of PACE Nation.
Only local governments have been using their assessment taxing power, to incentivize and carry out projects that improve property values, for decades.
“I can speak on behalf of the PACE providers because I talk to all of them. I don’t know where this senate bill came from, they didn’t reach out to us to learn about PACE,” says Gabrielson.1
Typical PACE Projects
According to Gabrielson, an average PACE project costs about $20,000 – too little to qualify for a mortgage.
Homeowners do not pay interest rates “of 8% to 12%”, as the senators claim.
America’s largest PACE provider, Renovate America, offers standard rates of 6.75%-8.35%. They have a special rate for contractors with high Contractor Quality Ratings, “2.99% to 7.25%, based on the financing term and the rate plan that the contractor selects.”2
A quick peek at the demographics shatters the myth that PACE programs “target” elderly Americans. Many seniors have taken advantage of this program, but the majority of homeowners are between 35 and 64 years old.
According to a recent study published in THE JOURNAL OF STRUCTURED FINANCE, when homeowners using PACE program sell their homes they recover their initial investment and, after taking into account the cost of improvements, (a profit that) ranges from $199 to $8,882.”3
Soon To Be Obsolete Renewable Technology
So why are Cotton, Boozman and Rubio claiming PACE loans are used for soon to be obsolete renewable technology.
All three senators are outspoken opponents of attempts to curb America’s emissions.Not too long ago Cotton said, “The simple fact is that for the last 16 years the earth’s temperature has not warmed.”While Rubio admitted the climate is changing, he added “the climate has always been changing … As far as a law that we can pass in Washington to change the weather, there’s no such thing.”
Is their opposition to PACE at least partially rooted in their attitudes to climate change?
What Is PACE Financing Used For?
If they had taken the time to ask, Gabrielson would have told the senators that only about 37% of PACE projects are solar installations. The vast majority (58%) are energy efficiency projects that lower monthly energy costs. Roughly 4% of the projects are for water conservation.
“Some projects would pay for themselves right away. Others, like windows would, but only after a long period of time. HVAC probably falls in the middle, depending on how long the system is expected to work (so the outer life of the financing)… The PACE advantage is that a home owner could get a higher efficiency system, perhaps more expensive, and the added cost would pay for itself with PACE relative to a cheaper, less EE system,” says Gabrielson.
“We estimate consumers have saved between $3 and $4 billion dollars (through reduced energy costs). I would say PACE programs have saved between 11 and 15 billion kilowatt-hours of energy. Solar installed, which is measurable, 70 Megawatts. The water saved would fill 14,000 Olympic swimming pools.”
“We didn’t talk about climate change in South Carolina, where we are working on a C-PACE bill. We didn’t talk about it in Texas, where both houses of the legislature and then Governor Rick Perry signed PACE into law. We talked about energy efficiency; the need to build fewer power plants; relief for an over stressed grid; allowing building owners to make investments that make sense from a business standpoint.”
Origins Of The Controversy
As many of you know, the PACE program originated in Berkeley during 2007. The city was looking for a vehicle that would make solar more accessible to homeowners. The mayor’s chief of staff, Cisco De Vries, came up with the idea of financing it the same way as other neighbourhood improvements. Financing companies would provide the capital for loans, which homeowners could pay back through their property taxes.
This eventually caused ripples within the financial community because PACE loans are a form of tax. If homeowners default, taxes are paid off before mortgages. In 2010, Fannie Mae and Freddie Mac issued a statement urging local governments to put their PACE programs on hold.
Last year, the US Department of Housing and Urban Development (HUD) brought forward a solution. While delinquent monthly payments to the city take priority over existing mortgages, the full amount of the PACE lien does not. To make a hypothetical repayment schedule, in case legal actions are required:
- If $2,000 is owed through delinquent PACE payments, that is paid out first
- Then the mortgage is paid off in full
- If there are still funds available, the residue of the PACE lien is paid off.
A quick glance at senators Cotton, Boozman and Rubio’s campaign contributors suggests they have become the opposition’s mouthpiece.
According to data from Open Secrets.org, senator Rubio has previously received at least $3,658,599 from the real estate sector. Commercial banks have kicked in more than $519,000. The bank of America has given $92,219 and Wells Fargo $71,310.
The numbers are smaller for Cotton, $490,430 from the real estate sector and $399,385 from commercial bankers.
Boozman accepted at least $323,633 from the real estate sector and $367,778 from commercial banks.
Appeal From The Rocky Mountain Institute
In their press release, senators Cotton, Boozman and Rubio state, “Specifically, this bill would require Truth in Lending Act (TILA) disclosure for anyone attempting to peddle PACE loans.”
According to a letter of support from the Rocky Mountain Institute, “PACE has been in California for almost a decade, and the state has adopted a set of robust and consistent consumer protection norms (CA AB 2693) that go beyond TILA and/or RESPA disclosure requirements in the key areas relevant to PACE, while also comprehensively accounting for the unique attributes of PACE.”4
All photographs courtesy Renovate America
- Roy L Hales interview with David Gabrielson, Executive Director of PACE Nation ↩
- email from Renovate America ↩
- Laurie S. Goodman and Jun Zhu, PACE Loans: Does Sale Value Reflect Improvements?,THE JOURNAL OF STRUCTURED FINANCE, Winter 2016, Vol. 21, No. 4, ↩
- Call to Lawmakers: Enhance PACE (Property Assessed Clean Energy) Instead of Bringing it to a Standstill, Rocky Mountain Institute, April 7, 2017 ↩