Last Week Tonight with John Oliver recently aired a segment digging into the PACE (Property Assessed Clean Energy) program. PACE financing was originally designed to help low-income homeowners make energy efficiency improvements for their homes. It is available in areas where the local government has allocated funds for property owners who aren’t able to pay for energy improvements like solar panels in cash. It allows them to finance their solar energy system with zero money down and no cost upfront.
However, the PACE program has recently been the target of harsh criticism in the media as a financing arrangement used by predatory lenders and/or unscrupulous contractors to target unsuspecting homeowners. PACE terms are unusual as it is technically a tax-lien and not a traditional loan and the payback can be complicated and high-risk without enough accountability for the private lenders who administer the financing program. The average amount borrowed is $25,000 and it is paid back over a 5-25 year term through an increase in property taxes, and the program has resulted in many homeowners losing their homes through the inability to pay drastic tax increases.
How Does The PACE Financing Process Work?
NOTE: PACE financing is not available for residential solar installations in Washington state. It is currently available in California, Missouri, and Florida with plans to expand into New York and Ohio.
In areas where it is available, PACE financing for solar panels generally follow these stages:
- A county, local, or municipal government passes legislation that establishes a PACE program and makes funds available to investors, usually through the sale of municipal bonds.
- An authorized PACE lender (such as Renew Financial or Ygrene) provides those funds to property owners who want to make clean energy improvements, like installing solar panels on their home or business.
- Property owners repay the financial institution through an assessment attached to their annual property tax bill.
Criticisms of PACE
There have been criticisms of the PACE program, saying that it allows for predatory contractors to dupe homeowners into signing a contract that effectively puts a lien on their property and then drastically increases their property insurance payments to cover the loan.
-Homeowners may not be sufficiently aware of the conditions of PACE funding, specifically, that is tied to their property and that if a property is sold before the solar PV system is completely paid off, the rest of the money owed transfers to the new property owner, which could be a major detriment to selling the property in the future.
-Because PACE is a zero-down financing option that requires no payment upfront, it has led to gimmicky sales tactics, with some companies going door-to-door to solicit customers who may not be sufficiently informed of the risks of the program. There are reports of some companies specifically targeting senior citizens, non-English speakers, and those with intellectual disabilities.
-Ads promoting PACE often state that “your house is actually borrowing the money and not you personally” which can mislead homeowners on their responsibility for the debt, as they are required to repay through their property taxes.
-PACE is often touted as a “government program” which was been endorsed by former President Obama which can instill a false sense of security in potential buyers. The program is administered by private companies, and there is no independent energy audit required of a home before the funding is applied so it relies on contractors making the correct assessment, leading to some unscrupulous contractors recommending unnecessarily expensive renovations for low-income homeowners.
-Although the program is administered by PACE lenders, the contracts are sold by individual contractors who may not have sufficient financial expertise to advise on the intricacies of PACE financing as a tax lien.
-Instead of repaying the loan in monthly installments, property owners pay their PACE funds back once a year for a fixed term (5-25 years) through an assessment that is added to their property tax bill. This assessment can lead to drastic increases (as much as 10-15 times higher) and some customers have reported that this increase is much higher than they were led to believe and many have lost their homes due to inability to pay.
-Because PACE is tied to the property itself, it is not dependent on the homeowner’s credit score, so it has been marketed for property owners without favorable loan options, putting these people further into debt. A recent study found that “many of those with the highest debt burdens are in the majority-minority zones”.
-The financing is not subject to the same consumer protections as a standard home loan, as it is a tax lien rather than a conventional loan, which means the lenders are not required to check if the borrower can actually afford to pay back the money or even understand the terms.
-PACE financing is a “priority lien” meaning in the event of a foreclosure PACE lenders collect their money before mortgage lenders or anyone else, meaning the debts are often lucratively bundled and sold into the stock market as an investment with high returns for financers. For this reason, Fannie Mae and Freddie Mac stopped backing mortgages for homes with PACE loans in 2010.
Does John Oliver’s Criticism of PACE Solar Financing Apply in Washington State?
PACE financing for solar PV installation is not available in Washington State. No matter which route you choose to go with financing your solar PV installation, make sure you are well-informed on the terms and conditions. The most important aspect of installing solar is to find the right solar installer. A trustworthy and reputable solar installer can give you a great recommendation for solar financing!
PSCCU Solar Financing in Washington State
We work with a proven and trustworthy lender, PSCCU to offer Solar and Energy-Smart Loans with the best terms and rates for our customers in Washington State. These are conventional loans, not PACE loans. PACE loans are not available in Washington State.
PSCCU is proud to be partnering with the Washington State Department of Commerce to provide low-cost financing to homeowners throughout the State. With an Energy-Smart Loan, you can make your home more energy-efficient and reduce your utility bills year-round. By participating in this program, you can get help with all your energy efficiency projects, with loans up to $150,000.*
|APR||3.24% – 9.84%|
|Maximum loan amount||up to $150,000.00*|
|Term in months||up to 240*|
*Note: This is an energy efficiency loan program. The measures/equipment you are financing must meet certain energy efficiency standards. If your project does not meet the efficiency standards of the program we may not be able to finance your project. Your approval along with the rates and terms are subject to your project meeting these efficiency standards.
For more information about program standards and whether or not your project qualifies please contact PSCCU or schedule your free solar site survey today to go over your options with our solar experts!