CFPB Enhances Safeguards for PACE Loan Homeowners

The Consumer Financial Protection Bureau (CFPB) has enacted a new regulation that mandates mortgage disclosures for Property Assessed Clean Energy (PACE) loans. This move is designed to protect homeowners from potentially high and unaffordable financial agreements associated with clean energy upgrades.

PACE loans, often utilized by homeowners for renewable energy installations and disaster preparedness enhancements, are structured to be repaid through property tax bills. However, these financial tools have raised concerns reminiscent of subprime lending practices, posing risks to homeowners’ property ownership.

Under the new rule introduced by the CFPB, lenders are now obligated to provide potential borrowers with standard mortgage disclosures. This requirement facilitates informed decision-making by allowing comparisons between PACE loans and alternative financing options, potentially at lower costs.

CFPB Director Rohit Chopra emphasized the necessity of this regulation by stating, ‘Today’s rule stops unscrupulous companies and salespeople from luring homeowners into unaffordable loans based on false promises of energy savings.’ This highlights the pressing need for transparency and accountability in lending practices.

While PACE loans offer a quick funding solution for home enhancements marketed through door-to-door sales, the CFPB identifies significant drawbacks. For instance, the reliance on these loans can cause property taxes to surge by approximately $2,700 annually, an 88% increase. Additionally, borrowers who select PACE financing may experience increased difficulty in maintaining their primary mortgage payments.

Research conducted by the CFPB indicates that PACE loans often carry interest rates higher by about five percentage points compared to traditional first mortgages. This becomes particularly concerning given that, in foreclosure scenarios, PACE loans take precedence over first mortgages, escalating financial risks for homeowners.

In response to deceitful practices by certain residential solar lenders, the CFPB released a report in August 2024. This report warned consumers about misleading terms and costs associated with solar loans, including misrepresented energy savings and unjustified fee markups.

The CFPB’s finalization of this rule marks a critical step in safeguarding homeowners from predatory lending practices in the clean energy sector. By mandating clear mortgage disclosures, the regulation enhances transparency and empowers homeowners to make well-informed financial decisions, thus reducing the risk of financial distress linked to PACE loans.

Source: Floridarealtors