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CUNA filed two comment letters Thursday in strong support of the Consumer Financial Protection Bureau’s (CFPB) proposal on Property Assessed Clean Energy (PACE) loans, one with financial services organizations, and one with CUNA’s individual comments. The CFPB has proposed applying Regulation Z (which implements the Truth in Lending Act) to PACE loans.
“In the proposed rule, the Bureau correctly recognizes that PACE financing fundamentally acts as mortgage credit, yet is provided by underregulated or unsupervised entities that often exploit the lien priority granted to tax assessments,” the joint letter reads. “As a result, residential PACE financing should be subject to the same regulations that apply to first-lien mortgages. The rule, if enacted, will significantly limit the well-documented abuses that have occurred in states with active residential PACE programs.”
PACE obligations are added to the borrower’s property tax bill as a voluntary assessment, paid through property tax installments. They take a senior lien position, displacing any existing mortgages. As a result, borrowers who are put into unaffordable PACE loans risk losing their homes to foreclosure if they cannot pay their tax bill or their increased escrow payment.
“Despite this, federal mortgage underwriting regulations have not previously applied to PACE, and that lack of robust consumer protections has led to an avalanche of PACE abuses,” the joint letter reads.
CUNA also supports the application of the Truth in Lending Act-Real Estate Settlement Procedures Act integrated disclosure requirements to PACE transactions, as well as expressly requiring creditors to notify mortgage servicers of PACE transactions promptly after consummation.
“There is no guidance in the commentary about how the PACE financing company should guestimate the timing for when the servicer ‘is expected to learn’ of the transaction,” CUNA notes in its individual letter.
The priority of PACE liens is not part of the proposal, nor is altering the priority of liens within the CFPB’s authority, but CUNA urges the Bureau to work with others to limit the harmful effects of this “super priority.”