controversial form of financing for environmentally
friendly home improvements in California has plunged
after reform legislation kicked in.
PACE loans grew in recent years as a way to pay for
solar panels and energy-efficient air conditioners.
Homeowners in the state took out more than $1 billion
worth of them in 2017. However, critics say unscrupulous
contractors frequently signed up borrowers with loans
they neither understood nor could afford. That helped
lead to state legislation that sharply tightened
first half of 2018 — the latest data available —
PACE lending plunged by 32 percent from a year earlier,
according to the state treasurer’s office, which
tracks the vast majority of the loans.
blame much of the recent drop-off on a new underwriting
law they say blocks too many qualified applicants.
Consumer groups say it’s too early to know the exact
effect. But they don’t deny regulation is having an
effect. It was, they note, designed to have one.
a positive development that people don’t get trapped
in financing that they can’t afford,” said Nicholas
Levenhagen, an attorney with pro-bono law firm Bet
extent there has been a reduction following recent
legislation,” he said in a later email, “it is
telling that this has occurred following the
implementation of basic consumer protections.”
Assessed Clean Energy programs, first started in 2008,
are typically established by local governments to reduce
greenhouse gases. Loans are financed through private
lenders such as Renovate America, Renew Financial and
Ygrene that use contractors to market their products and
sign up consumers. Local governments, which collect fees
for their services, then secure the loans to the home
through a lien, allowing them to be repaid as line items
on property tax bills.
loans go unpaid, a homeowner can be foreclosed upon.
unique product got off to a slow start. But by 2015, the
market was exploding. In the second half of 2014,
lenders issued $148.7 million worth of new loans in
California, according to state data; during the same
period a year later, volume jumped nearly fourfold, to
$553.9 million, as more counties added the program. A
year later, loan volume rose nearly 50 percent.
drive growth was an approval process built for speed.
Approval was largely based on home equity — with
income not a factor. Contractors could get people
approved on the spot by handing over a tablet computer
and asking for signatures. Lenders sent the financing
contracts to borrowers via email, making it possible for
borrowers to sign up within hours and in some cases
after they spoke only with the contractor.
lenders even used online systems that enabled
contractors to type in an address and know the maximum a
homeowner could be eligible for, allowing them to target
those with lots of equity and upsell until a homeowner
had signed up for the maximum possible borrowing.
grew, consumer groups said, homeowners who couldn’t
afford payments inundated them with phone calls. Many of
them were seniors who found the online approval process
confusing. A common complaint was that contractors
misrepresented how the loans worked.
out-talked and sweet-talked,” said Lawrence Linthicum,
a 90-year-old Inglewood resident who said it wasn’t
until after he took out two PACE loans that he
discovered the cost: nearly $8,300 annually.
companies say the vast majority of their customers come
away happy and foreclosures on homes with PACE are
extremely rare. But as stories of distressed borrowers
increased, companies took steps to add more protections,
including calling all homeowners to confirm loan terms
— something not all did at first.
Legislature also passed a series of reforms. The most
significant came in October 2017 when Gov. Jerry Brown
signed into law a requirement that lenders check income
and other debt obligations to ensure people could repay
their loans. Another law barred kickbacks to contractors
and prohibited lenders from telling contractors the
amount of financing homeowners were eligible for.
were also now required, by law, to call homeowners to
confirm terms, and the state Department of Business
Oversight was given authority to regulate the industry.
lending decline started before the laws kicked in. In
the first half of 2017, loan volume fell 17 percent from
a year earlier. In the second half, it dropped 18
percent. Part of that could just be that the market grew
saturated, with fewer consumers left to sign up. PACE
executives blamed a variety of other factors that turned
off consumers and contractors, including media coverage
of elderly homeowners stuck in unaffordable loans.
more competition, as lenders outside the PACE program
offered low teaser rates to win back business. That
included unsecured loans, which typically have higher
interest rates but don’t put a borrower’s home at
risk if they go unpaid.
an attorney with the National Consumer Law Center,
theorized that homeowners moved toward non-PACE,
unsecured products after reading up and deciding they
didn’t want the lien on their home. “There has been
more exposure to what PACE loans are,” he said. This
year, the decline accelerated.
Lemyre, senior vice president with Ygrene, said the new
ability-to-repay rule increased approval time from hours
to days or even weeks, pushing people toward quicker
options such as unsecured personal loans. In many cases,
Lemyre said, contractors ditched PACE before the income
rules kicked in on April 1, anticipating it would take
longer to close a deal. “They have their sales
cycles,” he said. “They just looked at PACE as
Financial, other parts of the 2017 law have created more
daunting challenges, said Colin Bishopp, a vice
president at the company. (Bishopp has since left Renew
Financial.) For example, lenders, with certain
exemptions, must deny people who had bankruptcies within
seven years. Individuals also can’t have more than one
late mortgage payment in the last year. (Come January,
those cutoff dates will change to four years for
bankruptcies and six months for missed mortgage
checks existed to some extent before, but not all
programs set the bar so high. Before the 2017 law kicked
in, Bishopp said, 30 percent of Renew Financial’s
clientele had a bankruptcy and late mortgage payment
that would disqualify them today. Those homeowners
tended to have lower delinquencies than all PACE
borrowers, according to Bishopp.
talking about people who need this tool and policymakers
picked an arbitrary line,” Bishopp said.
fewer loans, Renovate America, Ygrene and Renew
Financial have moved to lay off more than 200 employees
among them this year.
met this month with California Energy Commission staff
and two commissioners to discuss their concerns,
according to a commission spokeswoman. They’ve warned
that proposed rules from the Department of Business
Oversight would further choke off access.
letter to the regulator, Renovate America said it was
“fully aware” industries often respond to proposed
rules with “claims of overreach.” But it said its
business was different, noting PACE is a new type of
financing created with government help that requires the
“balancing of private interests and the public
defense of their product, PACE companies point to data
that show most borrowers aren’t experiencing problems.
In 2017, the tax delinquency rate for California
homeowners with Renovate America and Renew Financial
PACE loans was 1.9 percent, slightly lower than that of
all single-family homes in major PACE markets, according
to a report from credit rating agency DBRS.
groups contend it’s too soon to know whether low
delinquency rates will hold. And they worry that in
citing the funding decline, PACE companies will force a
knee-jerk reaction to roll back regulations that critics
think may need to be tighter.
a laudable goal,” Rao, of the national consumer group,
said of lending that helps reduce greenhouse gases.
“It just has to be done in a responsible way.”
those worried they’ll lose their homes is Linthicum,
the elderly Inglewood resident. In 2017, he took out two
loans from Renew Financial to pay for an air
conditioner, attic insulation, new windows, duct
replacement and exterior coating. He said he doesn’t
recall the contractors telling him how much he would
need to pay, only that he would do so through his
to himself as a “kid in a candy store,” Linthicum
said that the pitch for home improvements sounded good
and that he didn’t question it. “I never had nothing
and I wanted to better myself,” he said.
reverse mortgage company recently sent him a letter that
says money set aside to pay his property taxes is now
exhausted and he must make all future payments. Just his
PACE portion of the property taxes is the equivalent of
$689 a month, more than he consistently has available
after other expenses.
Financial declined to answer specific questions
regarding Linthicum’s situation but said it was
“committed to moving towards a satisfactory
PACE reserve fund may help him cover payments for a
time. But on a recent afternoon, sitting in his
wheelchair, Linthicum said he doesn’t know what to do
and hopes he won’t have to move to a senior home.
don’t think I was treated fairly,” he said,
referring to the contractors who signed him up for the
loans. “I am not as sharp as I used to be.… They
know this and they take advantage.”