Ismael Alonzo, a solar installer for AltSys Solar, Inc., fastens new solar panels to the roof of a garage behind a southwest Fresno home. By David Castellon
Written by David Castellon
Despite efforts by the Tulare County Association of Realtors to convince Tulare County supervisors not to authorize the Property Assessed Clean Energy (PACE) financing program in the county, the officials approved it.
The vote came a couple of weeks ago after more than a dozen people spoke for and against the program that provides financing for home and business renovations that save energy and water, including the installation of solar panels, upgrading air conditioners and appliances with more energy-efficient models, replacing insulation and installing low-flow toilets.
“What we would like to see is a halt to the PACE program in Tulare County, at least until it can be revised,” Ed Morton, a Visalia Realtor and president of the association, told the supervisors during the public comment period prior to the vote.
PACE is a national program that started in California in 2007 and has since been adopted in more than 500 cities and counties in the state, including most in the Valley and all eight cities in Tulare County.
The board’s single vote authorizes the program in unincorporated parts of Tulare County and authorizes Renovate America’s California HERO (Home Energy Renovation Opportunity) program to be the financer of PACE loans in the county.
In an interview prior to the board of supervisors meeting, Morton said his association took action to raise claims of unethical behavior by some contractors selling and installing equipment for the upgrades.
PACE is a way for property owners to pay for energy-related improvements without having to shell out high up-front costs, which has deterred many people from going forward with these sorts of improvements.
Under the program, private lenders authorized by each city or county provide the up-front money. Instead of paying back the loans by standard means, they’re rolled into property taxes — in much the same way home insurance payments can be — and added onto property tax bills.
Before that can happen, a state needs to authorize the program, and then it needs to be authorized by individual city councils or boards of supervisors for properties in unincorporated areas.
“We’re not against any kind of clean energy. We just want to see [PACE] fine-tuned,” said Morton, noting that from the start, Realtors didn’t like PACE loans being tied to property tax liens, essentially guaranteeing that they would be paid off, either as part of sales or — if the properties are seized for failure to pay property taxes — at auction.
The loans also can be transferred to whoever buys the properties, with the new owners continuing to make payments when they pay their property taxes.
Morton said that because PACE is such a young program, some of its problems are just beginning to surface, among them no requirement for lenders to review a property owner’s finances to ensure the person can afford the loan, some of which can be for tens of thousands of dollars for home energy or water-saving upgrades.
“The program is essentially very similar to the 2005 real estate debacle, where you were able to qualify for these loans without any income verification, as long as you have equity in your home,” said Brett Taylor, CEO of the Tulare County Association of Realtors.
And though the Valley’s real estate market currently is very healthy, “What if the market turns” and leaves property owners upside down, owing more than their homes are worth, he asked the supervisors.0
And while the lenders are guaranteed to get their money back — unlike during the housing crash, when many property owners defaulted on their mortgages, helping usher in the recent Great Recession — some people are at risk of defaulting on PACE loans that they can’t afford. They wouldn’t have qualified for them if the lenders had to assess every applicant’s ability to pay and had mandatory guidelines on when to turn down loans, Taylor noted.
PACE does good
But supporters of PACE also spoke, among them representatives of the HERO program, contractors who do energy upgrades and Darlene Achterberg, who said her Visalia home’s air conditioning system didn’t work for a year until she got a PACE loan, which was the only way she could afford to replace it.
“I would thoroughly encourage you to make this available to everybody in Tulare County,” the 73-year-old woman told the Board of Supervisors.
Currently, 414 properties are on the county tax roles with PACE loans, none of which are delinquent and/or under foreclosure.
But Morton noted that the program is young here, so the problems aren’t occurring as frequently as in other parts of the state, which he and his fellow realtors have heard about.
In fact, he noted that in Kern County, the problems have occurred enough that last month supervisors there voted to rescind its authorization for PACE in the unincorporated county.
And the Bakersfield City Council is expected to consider a similar proposal.
“It’s unfortunate, and we hope to get that reversed some time in the future,” Dustin Reilich, senior director of municipal development for the California HERO program, told the supervisors.
Blown out of proportion?
He said there have been only a small number of incidents in which people in Kern County have had problems paying off their PACE loans, “and that got blown up by their local Realtor association.”
In addition, he accused Kern County Realtors of initiating scare tactics and “causing fright” to supervisors when there are hundreds of homeowners there happy with the PACE program.
But the concerns aren’t being raised just by Realtors.
The National Consumer Law Center in
Boston issued a warning in November that PACE loans are risky, despite new guidelines by the U.S. Department of Energy to prevent abuses in the program.
The group stated on its website that PACE loans lack consumer protections, have few checks to ensure that energy savings are real and cost effective and are inappropriate for homeowners who may be eligible for free or lower-cost programs.
It went on to say that PACE loans “may be the next wave of Wall Street-funded predatory lending.”
Fixes on the horizon
But Greg Frost, national communications director for Renovate America, noted that federal legislation is being developed to require his company and other PACE lenders to do deeper financial evaluations of applicants before loans can be granted, and since January, a new California law has required fuller disclosure of loan information to customers.
And California HERO is taking the disclosure process one step further by contacting customers by phone and going over their financing agreements before finalizing the deals, which the law doesn’t require.
Frost also noted that his company turns down about 30 percent of applicants for energy- and water-efficiency loans.
“We require equity in the homes,” he noted. “People can’t borrow more than their homes are worth.”
Frost added that as of the start of this year, “We have a 98.7 percent on-time payment rate in California and Missouri,” two of the three states where his company offers PACE loans.
He noted that the program has operated in Florida for just a couple of weeks, so it’s too early to generate statistical data there.
Not a concern for commercial
Morton said Tulare County Realtors only are concerned with such loans for homeowners, as business owners are usually are more knowledgeable about financing and what they can afford to pay.
But he noted other problems related to PACE loans, citing reports by local Realtors of lenders granting loans to people who didn’t have sufficient equity in their homes — as required under the PACE rules — and charging extremely high interest rates on loans, as much as 10 percent.
In comparison Morton said, car loans currently average about 3.99 percent, mortgage loans generally top out at 5 percent and home equity lines of credit range at about 5-6 percent.
In addition, Taylor said he has heard of contractors over-charging people, including the case of somebody charged $23,000 for a new home air conditioner and installation, something that normally costs no more than $8,000.
Morton said some property owners are spending more than they need to, as some contractors are taking them in with sales pitches touting that the energy saving “pays for itself.”
The equity shuffle
And while the Valley’s real estate market has been strong enough that few people with PACE loans that they can’t afford have ended up defaulting on them, many have lost so much equity that they walk away with little or no money after a sale or are stuck with homes they can’t afford to sell, Realtors at Tuesday’s Board of Supervisors meeting said.
Another twist is coming from mortgage lenders, some of which are refusing to authorize home sales unless the PACE loans first are paid off, Morton said.
“I think it was a well-intentioned program that had the consequence of government involvement, and now that we’ve been in it a few years, we’re seeing the bad actors.”
Both Frost and officials at Tuesday’s meeting acknowledged there have been bad actors among the contractors selling and doing the home improvements.
Frost said his company launched earlier this year a system to track and identify persistent problems and complaints against contractors, and if possible try to work them out.
Contractors flushed out
But that hasn’t always worked, he said, noting that “since this started, we stopped doing business with 80 contractors,” about 10 percent of those that had been doing business with the HERO program.
After hearing from both sides Tuesday, the Tulare County supervisors voted 3-1 to authorize the PACE program in the unincorporated county.
Supervisor Steve Worthley didn’t attend the meeting.
Chairman Pete Vander Poel cast the “no” vote after suggesting the matter be tabled until after it’s determined if the proposed new federal PACE rules are approved by legislators.
Supervisor Amy Shuklian said she was comfortable going forward knowing that the board could rescind its vote later if the PACE program becomes problematic.
“We welcome the vote by the Tulare County Board of Supervisors,” Frost said in a press release after the vote.
“With HERO, a broad range of homeowners will now be able to access energy-saving home improvements, while benefiting from consumer safeguards that go well beyond those found with other types of home-improvement financing.”
“Obviously, it’s a good program,” but it needs some changes,” Morton said after the vote.
“We’ll continue to look out for homeowners, consumers and protect property rights because that’s what we do,” he said, indicating that its unlikely the Tulare County Realtors will challenge the board’s vote because the group is not a “big time litigious group, so I don’t seen any reason to start suing or anything like that.”