PACE loans, otherwise known as Property Assessed Clean Energy Bonds, are quick personal loans provided by cities to homeowners. Property taxes provide the way to repay these loans that are used to retrofit homes for more energy efficiency. Fannie Mae and Freddie Mac, along with the Federal Housing Finance Agency, though, have muscled these loans out of the market.
How PACE loans work
PACE loans, which are used everywhere from San Francisco to New York City, are “bond-backed loans”. The homeowner applies for finance loans in order to make energy improvements to the house. The city then turns around and sells these loans as bonds. Property taxes on the house are increased by the payment of the loan. Because the energy-use improvements stay with the house, the payments stay with the house also. Making improvements to a home can be costly, but this program helps personal payday installment loans find their way to the homeowners. The federal stimulus package helps provide the money to get these programs going.
Why PACE loans present a problem
Why are some federal agencies against these PACE loans? In short, because they might not get paid. To make their money, a mortgage holder has to sell a house that goes into foreclosure. Taxes and liens on the property have to be paid before the house could be sold by the mortgage lender. If the homeowner stops paying their mortgage, then the PACE loan gets paid off before the mortgage.
The risk to PACE loans?
No federal agency has yet taken action to shut down PACE loans, officially. In places where PACE loans are available, though, mortgage installment loan programs are tightening their standards. The PACE program has gotten a letter written by Henry Waxman and Barney Frank “urging officials to work together easily to resolve the uncertainty”.