A decade ago, Missouri created the Property Assessment Clean Energy (PACE) loan program to help homeowners and businesses get loans for clean energy improvements to their property. A PACE loan would be available if you needed new, energy-efficient windows, furnaces, water heaters, etc. Administration of the loan program has been contracted out to private entities around Missouri, generally authorized and “supervised” at the county level.
Unfortunately, the program has become another way for lenders to target the disadvantaged. I know what you may be thinking if you are familiar with Show-Me Institute’s work. “Wait, I thought you liked privatization?” Yes, I do. But this PACE program really is a combination of the worst of all options. The PACE program:
- Is a government program of questionable need in the first place. Is it really the government’s job to facilitate personal loans for new appliances?
- Was outsourced to the private sector with basically no oversight at all,
- Authorizes private lenders to use government taxing authority to collect on loans. PACE bills can be placed on your tax bill, and if you don’t pay the PACE bills, tax authorities can take your home on behalf of the lenders.
We learned about all of this through terrific reporting by investigators at Pro Publica. Jeremy Kohler and Haru Coryne documented how private lenders were making loans above the value of someone’s entire house at relatively high interest rates to people with risky credit histories. They were targeting these people and doing this precisely because they had greatly reduced risk. If the homeowners didn’t pay, the loan amounts would be put on the tax bills and the lenders would be able to take the homes eventually. Here are examples from the Pro Publica report:
But in St. Louis, an elderly widow said she had no idea she had taken on thousands of dollars in PACE debt, though she saw her property taxes rise sharply. A disabled couple in the Kansas City suburb of Raytown said they weren’t told of the impact on their property taxes; now they’re two years behind on their property taxes.
A Vietnam veteran and his wife in Kansas City are struggling to pay off a $21,658 loan for a solar panel array despite being enrolled in an energy assistance program; they said they just wanted to do something good for the environment.
A PACE loan is NOT a mortgage. Even with a mortgage, the private lender has to go through a civil process with their own lawyers to enforce the loan on the home. With a PACE loan, the county collector is required to do it for them. That is wrong. This situation is like taking out a loan for a new car, and then losing your house if you can’t make the payments. If the PACE private lenders were assuming more risk themselves, they would have been much more careful about their loans.
I have defended the title and payday loan industries in the past. Those companies loan very small amounts compared to what PACE programs will lend you—at admittedly extreme interest rates. But at least when you miss payments to the payday loan company, you don’t lose your home. (My understanding of title loans is they just work with vehicle title.) Those companies take some risk.
PACE lenders basically take on very little risk. Sure, if they loan more than the value of the house and don’t get any money back, you can say they are taking some risk. But how often will the recipient make no payments at all? Between the comparatively high interest rates cited in the articles and the availability of seizure for non-payment, the PACE lenders are incentivized to make large loans to people who might not normally justify the risk.
The St. Louis Business-Journal also has a very good story on this issue this week. There have been bills introduced to reform PACE in Missouri, and reforms are much needed. Some of the true heroes of this fight have been local county collectors who have pushed back against the involvement of their counties in this harmful program.
In my opinion, we should probably get rid of the entire program, but at the very least the ability of lenders to put the loan on your tax bill and take your home if you miss payments must be eliminated.
