CFPB indicates PACE regulations are on the horizon
The Consumer Financial Protection Bureau (CFPB) has issued an advance note of proposed rulemaking on Property Assessed Clean Energy (PACE) loans, signaling its intention to increase oversight on the divisive financing program.
PACE financing allows homeowners to pay for energy-efficient retrofitting through their property-tax assessments. In some states, these loans can take lien priority over the property’s primary mortgage — a rule that has drawn the ire of the mortgage industry. Another target of the mortgage industry’s criticism is that the PACE program faces fewer regulations than other types of financial services.
For a few years, mortgage and real estate industry groups have been urging the CFPB for tighter oversight of PACE loans. Nine trade organizations, including the American Bankers Association (ABA), the Mortgage Bankers Association (MBA) and the National Association of Realtors (NAR) co-signed a letter to the CFPB this past October, asking for PACE-loan subordination to established lien priority standards, as well as incorporating the PACE program into the Truth in Lending Act’s “overall mortgage protections.”
It seems the CFPB has taken notice.
Specifically, the CFPB’s notice calls for mandating ability-to-repay requirements, which are currently in place for residential mortgages through the Truth in Lending Act. That mandate was put in place last year by the Economic Growth, Regulatory Relief and Consumer Protection Act, which eased regulations imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.
Kathleen Kraninger, director of the CFPB, called the issuance “the next step in the Bureau’s efforts to implement the Economic Growth, Regulatory Relief and Consumer Protection Act as expeditiously as possible.”
New rules could hamper the rising popularity of PACE loans, which has mounted as buyers have become more interested in green-building and energy-efficiency strategies. The U.S. Department of Housing and Urban Development announced in 2016 that the Federal Housing Administration would guarantee mortgages accompanied by PACE liens, which helped the PACE program grow during the tail end of the Obama administration. That move, however, was met by widespread disapproval from the mortgage industry and the Trump administration reversed the policy in December 2017.