Property Assessed Clean Energy (PACE) financing operates in various degrees in the states and is regulated at the state level only. On a national level, PACE programs are affected by Fannie Mae and Freddie Mac’s refusal to back mortgages with PACE liens and the Housing and Urban Development (HUD) announcement that PACE liens must be subordinate to any Federal Housing Administration (FHA) guaranteed mortgages. So, while PACE regulation varies from state to state, common issues will arise.
Beginning of this year, California implemented a regulatory framework that addresses improving oversight and regulation in the industry; underwriting requirements, evaluating consumers’ ability to repay; and most importantly disclosures.
This article focuses on the impact in Florida and the state’s ability-to-pay requirement that has slowed down the application process and issuance. While regulation may have slowed issuance, investors of asset-backed securities (ABS) backed by PACE can find some comfort in the new regulations and the underlying credit quality of the portfolio. Now the industry needs to find a way to streamline ability-to-pay documentation so that PACE issuance can keep a steady supply.
PACE industry officials lauded the new law when it was introduced as legislation back in November, saying it was modeled after a package of reforms, including an ability-to-pay law, passed last year by the California Legislature to protect consumers in that state. But after the California ability-to-pay law took effect on April 1, applications and approvals for PACE financing dropped sharply in the state, and PACE officials blame an unexpected increase in additional documentation of income, expenses and debt required by the new law.