PACE Loans: Renovating residence with solar panels

June 20, 2021, saw the popular HBO news and current events program Last Week Tonight with John Oliver take on a controversial topic in construction: The Property Assessed Clean Energy (PACE) program. This state financing program is currently causing much debate among homeowners, contractors, and lawmakers across the country.

PACE financing, intended to aid low-income residents in renovating their homes for energy efficiency improvements, is used in a number of states and is still expanding (with New York and Ohio notably working to introduce the program to more residents). Introduced in 2008 by the Obama administration, PACE financing covers upfront costs of a home renovation, which are then repaid on the homeowner’s property tax bill over a period of up to 30 years. 

However, as Oliver noted, there are a number of red flags in the program’s reality, adding that “When PACE loans go wrong, they go very wrong.”

A major issue of the program is accountability, according to an April 25, 2021, report from ProPublica that discusses PACE’s impact in Missouri.

“[Missouri] law requires that PACE loans go only to people who can afford them and who will reap energy savings at least equal to the costs of the improvement,” the report states. “Yet local government officials tasked with overseeing the program said that they defer to private lenders to determine if those requirements are met, and are unaware of high delinquency rates.”

“…while the law authorizes PACE programs to do audits to ensure that borrowers save money on their energy costs, they are not required,” the report continues. “Officials from PACE programs in [Missouri’s] two biggest metropolitan areas said audits are not typically done.”

As Oliver noted, this lack of oversight means that contractors are often allowed to organize financing as well as being in charge of planning and building: “The people with responsibility of pitching a very complicated financial product — a pseudo-loan that’s technically a tax lien — are contractors whose training is not in finance.”

“It doesn’t stop there because contractors have also been accused of targeting neighborhoods of non-English speakers, senior citizens, and even those with intellectual disabilities,” Oliver continued.

Allegedly, several PACE contractors have been accused of using misleading tactics to sign up people for loans in mere minutes — loans which often lead to people losing their homes.

“This isn’t like agreeing to the terms and conditions of an iTunes update. This is like sitting across the table from a banker, potentially signing your house away,” Oliver said.

As PACE loans are technically tax liens as opposed to actual loans, the PACE program gets priority in any foreclosure actions.

Homes in the program are so often in danger of foreclosure, but lenders are hesitant to get involved due to PACE getting lien priorities on these properties. These issues have made it so that large lenders and creditors have already noticed PACE’s problems — major companies Fannie Mae and Freddie Mac have stopped lending to PACE-funded homes.

Freddie Mac’s policy on refinancing and energy retrofit programs notes that “A property subject to a lien that has, or may take a priority position is not eligible for sale to Freddie Mac. This includes Property Assessed Clean Energy (PACE) obligations that may result in a first lien priority at delinquency.”

Homeowners are often seriously affected — with minority communities hit the hardest

The report from ProPublica noted that the loan program is significantly impacting homeowners who weren’t prepared for the format of the system.

Using the example of Kansas City resident Diana Thomas, the report describes how the loan given through the PACE program in order to buy a new furnace and basement windows ended up being $18,200, nearly $2,000 more than the county’s appraised value of Thomas’ house.

“Jackson County, where [Thomas] lives, has placed a judgment against her and, if she cannot come up with three years of taxes, will sell the house in August at a public auction, taking the proceeds to settle the debt and leaving her with nothing.”

The report also notes St. Louis resident Joyce Piffins, whose loan for a new heating system taken out in 2017 will require a $24,870 total payment — just like Diana Thomas, a stark contrast between her home’s appraised worth of $8,421.

“I didn’t feel like I had a choice,” Piffins said about taking the loan. “I didn’t have money right then to pay for a new furnace, and it was cold.”

The report continues to note that “under the management of private companies, PACE programs in Missouri have charged high interest rates over terms of up to 20 years, using the government’s taxing power to collect loan payments through tax bills and enforce debts through liens.”

“By marketing their programs to people who need urgent repairs but have few options for credit, they have disproportionately burdened some of the state’s most vulnerable homeowners.”

According to ProPublica’s analysis, over 100 homes with PACE loans in Kansas City and St. Louis are at risk of being sold in public auctions — 29 of which are up for auction in 2021.

Strikingly, the report also notes that “the loans have put a disproportionate burden on borrowers in predominantly Black neighborhoods. In those neighborhoods, 28% of borrowers are at least one year behind in repaying their PACE loans compared with 4% in mostly white areas.”

“They’re also paying a larger share of their home value toward interest and fees — sometimes more than county appraisers say their homes are worth.”

Lawmakers clash across the country as proponents and opponents disagree on the program’s path forward

Many states across the country are grappling with the issues caused by the PACE program in significantly different ways — while some areas are looking to expand it, others are looking to stamp it out.

On May 25, 2021, St. Louis County, Missouri’s County Council held a hearing on a measure to expand the state-supported PACE program by adding a second loan administrator to oversee the program in unincorporated areas of the county.

St. Louis County assessor Jake Zimmerman, a major opponent of the high-interest residential program, urged the county to get rid of the program and compared proposals to add market competition and consumer protections to “putting lipstick on a pig.”

Zimmerman noted that danger to homeowners is essentially guaranteed as a part of the program in a video used as part of the most recent Last Week Tonight.

“The more of these you have, some percentage of the people will lose their houses. You can make consumer protection better and more rigorous, but at the end of the day some people will have their homes taken from them,” Zimmerman said.

A tweet from Zimmerman following the broadcast of Oliver’s segment on the PACE program showed continued support for getting rid of the program in Missouri: “Good on John Oliver for shining a light on this dangerous and abusive industry. Let’s end residential PACE in St Louis County before anyone loses their home.”

Of course, some contractors claim that the PACE program is actually working as intended, and shouldn’t be changed. This clashes with much of the work that people are doing to combat the program’s issues, such as a California PACE bill — SB 476 — which would make PACE financing inaccessible for many of the state’s homeowners. 

Speaking out against this bill, Sacramento, California contractor Jaime Schulz — owner of American Home Energy Savers — claimed in a June 22, 2021, opinion piece written for the Capitol Weekly that “existing PACE laws and regulations already provide the best consumer protections in the industry” and that “the added cost and trouble of the energy audit — which isn’t even relevant for many types of projects like roofing, heating or AC — would be too much of a hurdle for many homeowners.”

“I have completed thousands of PACE-financed projects, many of them for lower-income homeowners needing critical, money-saving energy upgrades. Not one customer has ever come back with a complaint about PACE…A good 60 percent of my business is financed through PACE.”

“…a proposed PACE bill in Sacramento, SB 476 would make PACE financing inaccessible for many California homeowners, forcing me to lay off workers at a time when our region needs more secure, good-paying jobs,” Schulz continued. “New legislation is not needed when existing laws and regulation [sic] are working. A lot of contractor [sic] and related jobs are on the line with SB 476.”