Joint Comments to CFPB on Residential Property Assessed Clean Energy Financing

Dear Director Chopra:

On behalf of the clients, communities, and industries we represent, we write in strong support of the Bureau’s proposed rule applying Regulation Z to Residential Property Assessed Clean Energy (PACE) loans. In the proposed rule, the Bureau correctly recognizes that PACE financing fundamentally acts as mortgage credit, yet is provided by underregulated or unsupervised entities that often exploit the lien priority granted to tax assessments. As a result, residential PACE financing should be subject to the same regulations that apply to first-lien mortgages. The rule, if enacted, will significantly limit the well-documented abuses that have occurred in states with active residential PACE programs.

Residential PACE loans are used to fund home energy efficiency upgrades. PACE obligations are added to the borrower’s property tax bill as a voluntary assessment, paid through property tax installments. Importantly, PACE loans take a senior lien position, displacing any existing mortgages. As a result, borrowers who are put into unaffordable PACE loans risk losing their homes to foreclosure if they cannot pay their tax bill or their increased escrow payment. Despite this, federal mortgage underwriting regulations have not previously applied to PACE, and that lack of robust consumer protections has led to an avalanche of PACE abuses.

The Bureau’s application of the Truth in Lending Act’s (TILA) ability to repay framework to PACE transactions, including modifications made to account for the unique nature of PACE, will curb abuses in the field. Unaffordable PACE transactions put borrowers’ homes at risk of immediate foreclosure like a first-lien default and, thus, they should not be treated differently from traditional mortgages. We urge the Bureau to retain its application of the overall ability to repay framework to PACE; as the Bureau has noted, this analysis is flexible and can be adjusted to provide robust consumer protections tailored toward the unique nature of PACE transactions.

Download the joint comment letter to read the full text.