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PACE or HERO Loans: Do they Mimic Subprime Abuses?

There is a type of loan called PACE or HERO loans that most homeowners may want to avoid. Commonly known PACE (Property Assessed Clean Energy) or HERO (Home Energy Renovation Opportunity) loans are repaid via the property taxes on your home. These loans were conceived as a way for homeowners to upgrade energy wasteful and inefficient homes. However, this program has become a financial and frustrating burden to many. Many of these loans have been criticized as mimicking the subprime mortgage scams of the 1990s and early 2000s.

Here is a breakdown of why these loans may be risky to the average homeowner:

  • Taking on a PACE lien may violate existing mortgages (even if payments are made), and may cause problems when selling or refinancing the house.
  • Fannie Mae and Freddie Mac will not purchase loans on properties with PACE liens so it can be hard to refinance or sell those properties.
  • Private contractors solicit and enroll homeowners, and may not be qualified to answer questions or concerns.
  • Low-income homeowners who are eligible for free energy efficiency improvements through the federal Weatherization Assistance Program or other lower cost options, but there is no requirement to tell homeowners about these free or low-cost options.
  • Marketed through door-to-door sales and telemarketers, posing a high risk of deceptive sales tactics and other abuses.
  • No clear remedies for injured homeowners.
  • Underwriting does not check whether borrowers can afford the loan and there is no guarantee that energy savings will pay for the improvements.
  • PACE liens/loans may not be covered by the Truth In Lending Act (TILA) or Real Estate Settlement Procedures Act (RESPA), which provide:
    • Ability-to-repay requirements.
    • 3-day advance review of documents with the right to cancel.
    • Ban on kickbacks; rules for broker compensation to avoid conflicts of interest;.
    • Extra protections for high-cost loans;
    • Enforceable remedies for violations and a ban on forced arbitration clauses (which significantly reduces a consumer’s legal options and rights).
  • No protections against upselling other products; less assurance of energy savings than through the federal Weatherization Assistance Program.
  • Nonpayment risks tax foreclosure and default on the homeowner’s traditional mortgage.
  • Generally there is an 8% to 9% interest plus a fee. This can add thousands of dollars per year to the property tax bill for 5, 10, or even 20 years.

These loans are offered by many different companies but the most common are Ygrene, PACE Equity, Twain Financial Partners, and Inland Green Capital (“IGC”).
If you have, or are unsure if you have a PACE or HERO loan on a previous renovation, and want some assistance, or if you want a second opinion on a loan for an energy efficiency upgrade or renovation PLEASE call the Jelmberg Team representative to get more information on these often predatory loans.
Call a Jelmberg Team representative you have been working with to get more information on PACE loans. To see a list of our agents click here or on the button below.

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