PACE Financing Concerns and Solutions
When California first introduced the concept of Property Assessed Clean Energy commonly referred to as PACE (Assembly Bill 811), the Legislature intended to provide homeowners with a financing option to help them save money, improve their homes, improve the environment, and invest in the local economies by putting contractors to work. As recently affirmed by several members of the California Assembly, the Legislature intended PACE programs be administered by local governments to help their property owners and improve the environment.
In March of 2010, Placer County launched its own PACE program, the mPOWER Program (money for Property Owner Water & Energy Retrofits) to help create local jobs, reduce energy costs for homeowners and business, reduce energy and water use and improve the environment. However, in July of 2010, the Federal Housing Finance Authority (FHFA) issued a statement voicing concerns about the priority status of PACE liens. As a result, Placer County suspended the residential part of the mPOWER Program. At that time, a number of PACE programs in the state continued, and several programs were initiated. Placer County re-evaluated the suspension of its residential program, and in light of the fact that other programs were proceeding without consequence, lifted the suspension of its residential program in July of 2013.
By 2015, tens of thousands of residential properties in California had used PACE financing to make energy efficiency, renewable generation and water conservation improvements, without consequence. In Placer County, more than 90 percent of residential properties that were refinanced did so with the mPOWER lien remaining intact. Of the ten percent that paid off, some property owners may have been consolidating debt or paying off the mPOWER lien for various reasons. Almost 70 percent of mPOWER properties subject to real estate sales closed with the mPOWER lien remaining intact. Then, in September 2015, something changed. Where most PACE liens had been allowed to remain on properties subject to new financing, lenders were now suddenly requiring the mPOWER lien to be paid off in most cases.
So what is being done to address this challenge in Placer County?
mPOWER starts with disclosures. Since inception of the mPOWER program, all applicants have been provided a separate page and a half disclosure, DISCLOSURE REGARDING ASSESSMENT FINANCING, which is part of the application and contains the following statements:
ENTERING INTO AN MPOWER ASSESSMENT CONTRACT WITHOUT THE CONSENT OF THE OWNER’S EXISTING LENDER(S) COULD CONSTITUTE AN EVENT OF DEFAULT UNDER SUCH AGREEMENTS OR SECURITY INSTRUMENTS. DEFAULTING UNDER AN EXISTING AGREEMENT OR SECURITY INSTRUMENT COULD HAVE SERIOUS CONSESQUENCES TO THE PROPERTY OWNER, WHICH COULD INCLUDE THE ACCELERATION OF THE REPAYMENT OBLIGATIONS DUE UNDER SUCH AGREEMENT OR SECURITY INSTRUMENT.
The County has advised the Property Owner that, due to certain guidance letters issued by mortgage purchasers Fannie Mae and Freddie Mac, mPOWER financing could adversely impact the Property Owner and the Property in a number of ways. These guidance letters may lead lenders to conclude that the assessment must be paid off before a property transfers or is refinanced, or to conclude that participating in mPOWER financing is a violation of typical mortgage terms prohibiting senior liens without lender consent.
As part of the application process, all property owners must attended a seminar where mPOWER financing is clearly explained. Since last fall, when we identified the change in lender treatment of PACE liens, we began telling property owners that, while an mPOWER lien is designed to stay with the property, it is highly likely that a new lender on the property will require the mPOWER lien to be paid-off. At least three times during the seminar, participants are told that a payoff will most likely be required in a sale or refinance. In fact, it is emphasized during the seminar that if someone is planning to sell or refinance, PACE may not be a good option. PACE makes sense for homeowners who plan to stay in their homes, or for those who know and understand that a subsequent lender is likely to require the PACE lien to be paid-off at the time of new financing. The disclosures do not stop there. The seminar information also encourages applicants to consider ALL financing options. And, again, during contract signing, mPOWER staff reviews the potential for subsequent lenders to require the mPOWER lien to be paid-off.
mPOWER provides all property owners disclosures that are consistent with TRID and with a three-day right of rescission.
mPOWER has worked to eliminate prepayment penalties historically required in municipal financing. The prepayment penalty was eliminated in November of 2015, and prepayment penalties previously collected have been. or are in the process of being, refunded.
Additionally, mPOWER has worked to identify lenders who are willing to allow the mPOWER lien to remain. So far, four local lenders have provided, in writing to mPOWER, that they provide financing on properties with an mPOWER lien to property owners who otherwise meet their underwriting criteria. The contacts for these lenders are:
Mark Ray – Mortgage Loan Representative
3992 Douglas Blvd, Suite 110
Roseville, CA 95661
T (916) 872-2007
C (916) 225-5626
Pacific National Lending
Mark Avila – Senior Loan Officer
T (877) 536-3076 x2702
C (916) 947-0644
F (916) 526-2705
Alpine Mortgage Planning
Michelle Costa – Mortgage Advisor
2281 Lava Ridge Ct, Suite 210
Roseville, CA 95661
T (916) 789-1692
C (916) 223-2411
Joe Siau – Senior Mortgage Consultant
2998 Douglas Blvd, Suite 105
Roseville, CA 95661
(Provide financing for up to 75% of appraisal value)
mPOWER also participates in the State of California’s PACE Loss Reserve Program. This program was created to reimburse any lender that makes a payment on a PACE lien that the lender was not otherwise able to recover. Established in 2014, no claims have been filed against it. Records in Placer County show that properties with the mPOWER lien have significantly lower property tax delinquency rates than other properties. Sonoma County reports similar findings. And, David Hochschild, California Energy Commissioner, reported recently at a joint hearing on PACE, conducted by the Assembly Banking and Finance Committee and the Local Government Committee, that properties with PACE liens were 32 percent less likely to have a default on their mortgage.
“It [PACE] saves money for homeowners [on their utilities] and puts them in a better position to pay their mortgage,” stated Hochschild.
Build It Green, a nonprofit organization dedicated to creating better buildings, notes on their web site: “Homeowners and homebuyers are increasingly looking for contractors, architects, engineers, specialty contractors, and real estate professionals who are qualified to provide green building services.” https://www.builditgreen.org
. Build It Green states that nearly 40% of home buyers consider energy efficient features to be “very important”.
Of 1.6 million homes sold in California during a 2012 study, 4,231 of the homes had a green label from Energy Star, GreenPoint Rated or LEED for homes. The study found that an otherwise comparable home with a green certification sells for up to 9% more than homes without a green label. A copy of the study can be found at www.pacenation.us/wp-content/uploads/2012/08/KK_Green_Homes_0719121.pdf
. You may also be interested in viewing the GreenPoint Rated map to see GreenPoint Rated properties in Placer County at www.builditgreen.org/greenpoint-rated/greenpoint-rated-homes-map
Build It Green has partnered with the National Association of REALTORS® to offer trainings (fees waived, thanks to the support of The Energy Network
) to help California real estate professionals earn the Green Designation certification. To find out more, go to https://www.builditgreen.org/training-events/green-real-estate
While PACE is not perfect, we also know that it offers many homeowners the opportunity to lower their utility bills, which increases household disposable income, increases business profits, and adds to property value.
Please know that the staff at mPOWER Placer are committed to providing the mPOWER program in a manner that reflects the highest consumer protection and best customer service. We also strive to be a positive force in the communities we serve. We welcome your comments and questions. Please don’t hesitate to contact us at 530-889-4174 or www.mpowerplacer.org
This entire article was provided by Jenine Windeshausen, Placer County Treasurer-Tax Collector