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MortgagePoint » Your Trusted Source for Mortgage Banking and Servicing News 66 J O U R N A L June 2023 homeowners into unaffordable loans with exaggerated promises of energy bill savings, this can lead to serious financial distress," CFPB Director Rohit Chopra said. "We are proposing new rules that would require sen- sible safeguards on these clean energy loans." If finalized, the CFPB's proposed rule would require PACE creditors and PACE com- panies to consider a consumer's ability to repay when issuing a new PACE loan, and it would amend Regulation Z to address how TILA applies to PACE transactions. Among other amendments, the proposed rule would adjust disclosure requirements to better fit PACE loans and to help consumers understand the loans' impact on their property tax payments. PACE loans finance home improvements for borrowers, who pay back the loans through increased property tax payments over time. Eligible upgrades can include en- ergy and water efficiency projects or projects to prepare homes for natural disasters. From 2014-2020, a majority of PACE loans were for home improvements for natural disaster preparedness. The obligation of paying the loan back through higher property tax pay- ments remains with the property even if the borrower sells the property. Although PACE lending is authorized by local governments, private companies typically administer the programs, which can include marketing of the loans, managing originations, and mak- ing the lending decisions. In October 2022, the FTC and State of California sued one of these private PACE administrators, Ygrene Energy Fund Inc., to force it to stop deceptive, coercive, and fraud- ulent sales practices. "Ygrene Energy Fund took advantage of hardworking California families, jeopardiz- ing their most valuable asset in the process," California Attorney General Rob Bonta said. "This settlement holds Ygrene accountable for their misconduct and establishes guard- rails to protect property owners from future deception. PACE financing was meant to help families make important home improve- ments, but the dishonesty of companies like Ygrene has left some homeowners at risk of losing their homes. Before signing a PACE contract, I urge all to familiarize themselves with this program and take the time to understand what it is and, most importantly, what it isn't." A court order required Ygrene to stop its deceptive practices, and meaningfully oversee the contractors who have served as its salesforce. As part of the settlement, Ygrene was required to dedicate $3 million to provide relief to certain consumers whose homes are subject to the company's liens. The CFPB's new proposed rule comes five years after President Trump signed the Eco- nomic Growth, Regulatory Relief, and Con- sumer Protection Act of 2018, which directed the CFPB to prescribe ability-to-repay rules for PACE financing and to apply the civil liability provisions of TILA for violations. The CFPB's report on the PACE loans highlights the impact these loans have on borrowers' credit outcomes. The report focused on California and Florida as these are the two states where almost all PACE loan activity has occurred to date. Some of the risks to consumers identified in the report include: » Higher property taxes: PACE loans increased a homeowner's property taxes by about $2,700 per year on average—an increase of about 88%. » Higher interest rates: The average PACE loan had a 7.6% interest rate, which is much higher than average interest rates for home purchase or home equity loans. » Increased mortgage delinquencies: In the two years following PACE loan origination, the mortgage delinquency rate for PACE loan borrowers with a preexisting mort- gage increased by 2.5 percentage points. » Increased credit card balances: Consumers without a preexisting mortgage increased their credit card balances in response to acquiring a PACE loan, perhaps accumu- lating credit card debt in order to make the PACE loan payments. PACE borrowers were more likely to reside in census tracts with higher percentag- es of Black and Hispanic residents relative to the average for their states. Reforms and reg- ulation of PACE loans in California appear to have substantially reduced the volume of delinquencies compared to the trend in Florida over the same period. The CFPB is taking action to implement statutes and activate authorities enacted by Congress. Recent actions include: The CFPB recently met a court deadline to finalize rules implementing a required small business lending data collection pro- vision under Section 1071 of the Consumer Financial Protection Act. The CFPB has also started a rulemaking process on personal financial data rights, using a dormant authority under Section "When unscrupulous companies bait homeowners into unaffordable loans with exaggerated promises of energy bill savings, this can lead to serious financial distress." —Rohit Chopra, Director, CFPB