WASHINGTON–An increasing number of homeowners are at risk of foreclosure as the result of a mistakenly believing loans they took out to improve energy efficiency were government grants instead of loans.
The Wall Street Journal is reporting that many of the homeowners who took out loans to insulate their homes, for instance, as part of what lenders were calling the Property Assessed Clean Energy, or PACE, program, are now at risk of not being able to pay the loans, which are repaid with tax assessments. Such loans, set up by local governments across the U.S., are designed to encourage homeowners to buy energy-efficient solar panels, window insulation and air-conditioning units, the Journal reported.
According to the report, approximately $3.4 billion has been lent so far for residential projects, and
“industry executives predict the total will double within the next year. That would likely rank PACE loans as the fastest-growing type of financing in the U.S.,” the Journal said.
But the Wall Street Journal report found that as the “the loans spread, so do problems that echo the subprime mortgage crisis. Plumbers and repairmen essentially function as loan brokers but have scant training and oversight. They often pitch PACE loans to help land contracting jobs and earn referral fees from lenders, according to loan documents and more than two dozen borrowers, industry executives and employees interviewed by the publication.
The Journal said creditworthiness matters little to lenders, because loans are based on the value of a homeowner’s property. PACE loans typically require no down payment, and the debt is added to property-tax bills as an assessment.
The largest PACE lender in the U.S., Renovate America Inc., was accused in three lawsuits filed in November by borrowers of double-charging interest and administrative fees and failing to immediately credit loan payments, the Journal said.
PACE loans range in size from about $5,000 to more than $100,000, with an average of about $25,000, and charge interest rates of 6% to 9% over a repayment period of usually five to 25 years, the Journal said.