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Published: August 2016
Solar panel loans cast shadow on low-income families
The U.S. Department of Energy (DOE) recently drafted a list of nonbinding best practices for states and localities that adopt property assessed clean energy (PACE) programs. However, the guidelines don't adequately protect consumers, and PACE loans should be subject to the same rigorous federal disclosure and consumer protections as mortgages. In a letter to the DOE, advocates argue that the loans will put lower-income borrowers at a greater default and foreclosure risk. PACE loans tend to carry significantly higher interest rates than second mortgages and are structure as assessments that can cause issues.
As part of the White House's efforts to bring renewable energy and energy efficiency to low-income households, there has been a renewed push to implement Property assessed clean energy (PACE) loans. PACE loans are a special kind of financing sponsored by local governments and used to pay for energy-efficiency improvements, such as solar panels, energy-efficient appliances and windows. The Federal Housing Authority has issued a mortgagee letter stating that FHA mortgages can be issued when there is a PACE assessment on the property and the Veterans Affairs Department issued similar guidance for its own loan program. The U.S. Department of Energy (DOE) has released a draft update to their PACE Best Practices Guidelines, and is taking comments on the draft guidelines until August 19.
Consumer Action joins NCLC and other consumer advocates in opposing PACE financing for low-income homeowners. The DOE’s current guidelines don't adequately protect consumers and PACE loans should be subject to the same rigorous federal disclosure and consumer protections as mortgages. In comments to the DOE advocates argued that PACE loans are inefficient for the following reasons:
- PACE loan debt is toxic for low-income people
- PACE loans create a tax lien that would raise the risk of foreclosure
- PACE funding lacks the basic mortgage protections that are typically available to homeowners
- PACE approval relies on the equity in the home and does not look at a borrower's ability-to-pay
- PACE usually does not make good financial sense for the homeowner, as it is more expensive than certain existing state programs or home equity loans
- Low-income people are better served by WAP and other existing programs that provide direct assistance
- The record for existing PACE programs is mixed, and PACE may not be achieving its goals
National Consumer Law Center (NCLC)
National Consumer Law Center, on behalf of its low-income clients and Action, Inc. (MA) | Citizens Action Coalition of Indiana | Consumer Action | Consumers Union | Community Action Partnership of Oregon | Economic Opportunity Studies, Inc. | Iowa Community Action | Low-Income Energy Affordability Network (MA) | National Community Action Foundation | North Carolina Justice Center; the Pennsylvania Utility Law Project, on behalf of its low-income clients | People’s Action | Public Citizen | Public Justice Center (MD), and the Public Utility Law Project of New York
For more information, please visit NCLC's website.
Solar panel loans cast shadow on low-income families (DOE_PACE_comments_2016_Final.pdf)
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