Removing Barriers Blog

California League Seeks CU Protections in PACE Legislation
Posted March 22, 2016 by CUNA Advocacy

The California League was successful in amending a Property Assessed Clean Energy (PACE) bill, A 2693.  PACE programs allow lenders authorized by the state to finance loans for energy improvements on residential properties. These loans take first priority and must be paid before borrowers can refinance or sell their property, which is troublesome for California credit unions. Last week an amendment was made last week to the bill to address the lien issues surrounding these programs.

Because of the lack of regulation surrounding PACE programs and the super-priority lien, these programs have received considerable attention from homeowners, traditional lenders, and the Federal Housing Finance Agency (FHFA). In a December 2014 statement, the FHFA wanted to “make it clear to homeowners, lenders, other financial institutions, state officials, and the public that Fannie Mae and Freddie Mac’s policies prohibit the purchase of a mortgage where the property has a first-lien PACE loan attached to it.” For credit unions and their members in California, the unwillingness of Fannie Mae and Freddie Mac to buy mortgages with attached PACE liens means a chilling effect on the liquidity of the lending market.

The League is working with a coalition to reform of the current PACE program. The amended legislation will reduce the super-priority lien to a judgment lien while allowing PACE lenders to collect on the loans through property tax assessments, and will also require PACE lenders to provide TILA-RESPA Integrated Disclosures to potential borrowers.