ARLINGTON, Va.–Credit unions are negatively impacted when PACE-financed improvements result in a superior lien on a property with a preexisting mortgage, NAFCU told the CFPB in a letter.
CUNA, too, is sharing concerns with the Bureau.
"NAFCU members offer loans for green and energy-efficient improvements as a substitute to PACE loans that can be secured or unsecured and do not place a lien on the member's real property," wrote NAFCU Regulatory Affairs Counsel Kaley Schafer. "Generally, credit union members seeking mortgage loans from a credit union will uncover a PACE lien at the time a title search is conducted. NAFCU members have experienced members ultimately deciding to forgo loan origination because of the high cost of the outstanding PACE loan balance."
Schafer sent the letter in response to an advanced notice of proposed rulemaking (ANPR) on PACE financing issued by the CFPB earlier this year. The bureau is required to establish certain regulations for PACE financing under the Economic Growth, Regulatory Relief, and Consumer Protection Act (S.155). Although PACE financing is not offered by credit unions, the loans' tax lien positions and associated risk factors can have an impact on a credit union, NAFCU noted.
"More recently, PACE financing programs have suffered from abuse and fraud on the part of contractors and private lenders that are carrying out government PACE financing programs," Schafer wrote. "Ultimately, consumers are the ones that suffer the most. Consumers report aggressive cold call and door-to-door marketing campaigns. Aggressive marketing tactics harm certain groups of consumers more than the average consumer, such as elderly individuals or those who do not speak English as their primary language."
Shafer said NAFCU’s position is regulating PACE financing under TILA could include greater consumer protections and increased transparency in affordability, and NAFCU's support of TRID disclosures to enhance consumer protections and ATR underwriting requirements for PACE loans.
NAFCU noted it previously supported legislation to increase PACE loans' consumer protections, such as requiring federal TILA-rooted requirements and considerations for PACE loans – including the CFPB's ability-to-repay and qualified mortgage rules, among other standards.
NAFCU’s S.2155 summary guide, which details credit-union related provisions within the law including effective dates and other specifics can be viewed here.
In a letter to the agency, CUNA highlights the need for an “ability-to-repay" analysis and disclosure requirements. President/CEO Jim Nussle said he is calling on the Bureau to act quickly but also coordinate with other federal regulators in the housing market.
The letter, signed by Senior Director of Advocacy and Counsel Alexander Monterrubio, recommends the Bureau’s rule address:
- Proper underwriting requirements for PACE financing, including an “ability-to-repay” (ATR) analysis based on verified and documented information about the borrower;
- Clear, understandable disclosures of the key terms, repayment and potential impacts of a PACE lien provided to the homeowner prior to the execution of the contract
- Debt-to-income ratios should not exceed the ratio established for traditional mortgage loans
- Its application to any type of residential PACE lending, regardless of brand name or how the program is marketed to the consumer
- Preemption of state laws, unless a state has established a higher standard of consumer protection
CUNA also recommends the Bureau continue to work with other relevant regulators and industry stakeholders during the development of a PACE Financing Rule.