Lacy Robertson is a mortgage originator and Realtor with
Equity Smart Home Loans and Equity Smart Real Estate
Services in Irvine, California. She has been quoted in The
Sacramento Bee and published in the Los Angeles Sentinel
on the subject of predatory lending. Reach Robertson at
(714) 914-7254 or firstname.lastname@example.org.
Borrowers Need Straight
Talk About Green Financing
Informing homeowners about the good and bad of PACE
loans is smart business
By Lacy Robertson
Consumers are regularly hit with product marketing pitches touting environmentally friendly improvements for their homes, such as solar panels, drought-tolerant landscaping, double-pane windows and other water and
energy-saving ideas. They also are bombarded with
pitches for financial products that go hand-in-glove
with these upgrades.
These green-financing products include local
government-sponsored programs such as Property
Assessed Clean Energy (PACE) programs — often
referred to as Home Energy Renovation Opportunity
(HERO) loans. This PACE financing is one way to pay
for green improvements to a home — including
energy- and water-efficiency upgrades, and even
These so-called green-financing programs, however, can have drawbacks. A savvy mortgage originator can build strong relationships — and gain future
referrals — by knowing and conveying the strengths
and weaknesses of this type of financing.
Pros and cons
PACE programs have been approved in more than 30
states throughout the country, but these programs are
operated at the city and county levels. The financing is
repaid as an assessment on the property’s regular tax
bill, in much the same way as assessments are levied
for public infrastructure, such as sidewalks and sewers,
according to the trade group PACENation.
Advocates say the financing is a way to pay for
upgrades that lower utility bills with no upfront
out-of-pocket costs to the homeowner. Supporters also
say that the improvements can add value to homes.
An independent analyst conducted a study a few years
ago showed PACE homes sold for as much as $9,000
more than homes that hadn’t been upgraded.
Critics argue that there are many problems with
PACE financing. For one, they say the energy savings
seldom offset the cost of improvements. These critics
also contend that the upgrades are often made without a home-energy audit or a third-party certification,
so the homeowner has no idea of the true value of the
Homeowners who take out the financing can have
problems selling or refinancing the property because
the assessment for the PACE financing is attached to
the property itself, rather than the owner. Critics also
contend that this type of financing silently erodes the
homeowner’s equity and, in the event of another downturn, could cause serious problems in a community by
putting more people underwater on their mortgages.
Recent articles in the Los Angeles Times and Wall
Street Journal have highlighted the stories of people
who took out the financing but later regretted it. The
articles describe aggressive tactics employed by con-
tractors making cold calls or engaging in door-to-door
marketing and convincing consumers to undertake un-
necessary projects. Some contractors were inflating the
cost of their services and misrepresenting how much
the PACE loans cost or how the money would be paid
back, according to the Los Angeles Times’ reporting.
Last year, California Gov. Jerry Brown signed two bills
into law that boost consumer protections for PACE-loan borrowers. Eligibility for these programs in California was largely based on home equity and credit
scores. Income was not a factor.
One of the reforms requires the borrower’s income
to be factored into the underwriting for PACE financing. The legislation also barred kickbacks from lenders
to contractors and established minimum training
requirements for contractors marketing PACE financing projects, according to the Los Angeles Times.
The Federal Housing Administration (FHA) also has
weighed in on the issue. The agency no longer allows
homeowners to take out FHA-approved reverse mortgages on properties that are subject to PACE loan liens.
Even if a homeowner qualifies for a reverse mortgage,
they cannot use that product to pay off the PACE loan.
In addition, this past December, the FHA decided
it will no longer insure new mortgages on properties
that include PACE assessments, reversing a policy it
adopted a year earlier. U.S. Department of Housing
and Urban Development Secretary Ben Carson said at
the time that the federal government can no longer
“tolerate putting taxpayers at risk by allowing obliga-
tions like these to be placed ahead of the mortgage
itself in the event of a default.”
He added that the PACE assessments may have seri-
ous consequences for a borrower’s ability to repay
or refinance their mortgage or sell their home. The
agency also expressed concern about PACE obliga-
tions placed on FHA-insured mortgages that are
The success of a top-producing originator is not predicated on selling financial products alone. Flourishing
originators also are adept at developing relationships
that lead to new business.
They understand that it’s not subtle to ask clients,
“Do you know anyone who is intending to buy a
house.” It is a poorly disguised attempt at getting a
referral, and they know this approach can sometimes
backfire and make their clients feel uncomfortable, as
if they have been put on the spot.
In order to cultivate new business, it’s better for
mortgage professionals to educate clients, including
pointing out that clean-energy financing can sometimes have messy consequences for homeowners.
Being transparent in this way represents the mortgage
industry in a positive light.
By reaching out to their clients and providing candid advice, originators stay top of mind with them.
At the same time, originators can demonstrate their
value to clients by providing advice that proves to be
on the mark.
In some cases, originators can even dissuade a client
from making a decision that can lead to a bad outcome — such as entering into a green-financing deal
that results in them over-leveraging their property.
Proving their value in this way is a great way for originators to get quality referrals for new business. n
“It’s better for
out that clean-
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