Consumers Face Mortgage Problems with Green Initiative Loans
More homeowners want to live in green homes, and there are many government financial incentives to help them “go green” with affordable home improvement loans. These loans promote energy efficiency by making it easier to borrow money to do projects such as installation of solar panels, wind turbines, or similar green retrofits and upgrades. Under the program, which is named Property Assessed Clean Energy or PACE, people can borrow money from their local governments and then repay the loans as part of their property tax payments.
The loans can be worth as much as $50,000 or more and can be paid off over a period of 15-20 years, so they are much like traditional home improvement loans or home equity loans. Supporters of the PACE program believe that it can fund up to a billion dollars worth of energy efficient remodels in the state of California alone. They also point out that making the funds available to homeowners will accelerate the implementation of green homes technologies that are needed to address our energy crisis.
But Fannie Mae – which is one of the biggest players in the home mortgage market in the USA – is not happy with PACE. That’s because loans made by local governments and attached to property taxes will be senior to first mortgages. That means that if the homeowner defaults or gets foreclosed on, the PACE loan will have to be repaid first before other lien holders get paid. Say, for example, that a homeowner owes $200,000 on the loan they used to buy the house and they have a $40,000 PACE loan on top of that to pay for green improvements. If they go into foreclosure the law says that the $40,000 PACE loan holder deserves to get repaid first, before the mortgage company can bring a claim for its share of the debt owed.
In some cases that means that lenders are limiting the amount a homeowner can borrow with PACE funds, they are requiring homeowners to have more home equity before using PACE loans, or they are insisting that PACE loans do not exceed 10 percent of the total value of the property. For the time being PACE programs may be stalled because of these problems, and consumers will have to consult their local lenders and government agencies to know exactly what PACE loans are available to them under what terms.
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