MortgageReal EstateRegulatory

CFPB plans to issue rules on PACE loans

Bureau asks for industry input on green financing

The Consumer Financial Protection Financial Bureau signaled Monday that it plans to issue rules for the Property Assessed Clean Energy program, which allows homeowners to obtain financing to make improvements to their homes to increase the home’s energy efficiency.

The CFPB said Monday it is issuing an “Advance Notice of Proposed Rulemaking” on PACE financing that could see an Ability-to-Repay provision added to PACE regulations, much like currently exists in mortgage lending and requires lenders to make a “reasonable and good faith determination” on whether a borrower can repay a loan before approving them for said loan.

The addition of an ATR requirement for PACE financing was stipulated as part of the Economic Growth, Regulatory Relief and Consumer Protection Act, the Republican-led rollback of the Dodd-Frank Wall Street Reform and Protection Act, which was signed into law in May 2018.

Under programs like PACE, single-family energy retrofit financing programs can be structured to make loans through the homeowner’s property tax assessment and require that borrowers repay their loans as part of their property tax bill, but in some states, the PACE liens are given super priority status above the home’s mortgage.

PACE programs are also not regulated as heavily as other financial services, including mortgage lending.

PACE financing has increased in popularity in the last few years, although the rise of the program hasn’t been without its issues.

In 2016, the Department of Housing and Urban Development under President Barack Obama announced, with much fanfare and controversy, that the Federal Housing Administration would begin insuring mortgages that also carry PACE liens.

But in late 2017, the Trump administration reversed that decision, declaring that the FHA will stop insuring mortgages on homes that also carry PACE liens.

The decision was celebrated by the mortgage industry, much of which has long been opposed to the way PACE is used to finance solar panels and the like.

Now, the CFPB is looking at increasing its oversight of the PACE industry.

With the Advance Notice of Proposed Rulemaking, the CFPB is asking for feedback on more than 30 questions about how PACE financing works and its place in the financial ecosystem.

According to the CFPB, it plans to use the comments it receives to develop a Notice of Proposed Rulemaking, the next step in the bureau’s rulemaking process.

“The information solicited will enable the Bureau to better understand the market and unique nature of PACE financing,” the CFPB said in its announcement. “This will help the Bureau formulate proposed regulations that not only would achieve statutory objectives but also would reflect a careful consideration of costs and benefits.”

The CFPB announcement states that it is looking for information in five categories: (1) written materials associated with PACE financing transactions; (2) descriptions of current standards and practices in the PACE financing origination process; (3) information relating to civil liability under TILA (Truth in Lending Act) for violations of the ATR requirements in connection with PACE financing, as well as rescission and borrower delinquency and default; (4) information about what features of PACE financing make it unique and how the Bureau should address those unique features; and (5) views concerning the potential implications of regulating PACE financing under TILA.

“Today’s action is the next step in the Bureau’s efforts to implement the Economic Growth, Regulatory Relief and Consumer Protection Act as expeditiously as possible,” CFPB Director Kathleen Kraninger said. “I look forward to reviewing the comments in response to the questions we are asking to facilitate the required rulemaking.”

The CFPB said that the public will have 60 days to comment on the PACE notice.

To read the CFPB’s full request for comment, click here.

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