On Dec. 17, CFPB rule to prescribe ability-to-repay to PACE financing.
CFPB issued final residential property assessed clean energy (PACE) financing rule.
Applied existing residential mortgage protections to PACE loans; ensures borrowers have right to receive standard mortgage disclosures with ability to compare costs.
Lenders offering PACE products banned from setting borrowers up to fail on loans.
Follows 2023 proposal on consumer protections for residential PACE loans, #171383.
Also follows advisory and report on problematic loans for solar energy, see #222340.
PACE Financing Rule
PACE financing is financing to cover the costs of home improvements that results in a tax assessment on the real property of the consumer; amended Reg Z (12 CFR 1026).
Amended Reg Z’s exclusion of tax assessments and tax liens from definition of credit to clarify voluntary tax assessments and tax liens are not excluded under TILA, Reg Z.
Recognized PACE financing as meeting the definition of credit under TILA and Reg Z.
Additionally, prescribed ability-to-repay requirements for residential PACE financing.
Made other amendments and exemptions to clarify how rules in Reg Z apply to PACE.
Applies to residential PACE financing; generally, covers PACE transactions, defined as financing to cover costs of home improvements that result in a tax assessment.
Covered PACE transactions are voluntary transactions repaid through the property tax system alongside the consumer’s other property tax payment obligations.
Clarified TILA exclusions apply to involuntary tax liens, involuntary tax assessments.
Because PACE transactions are voluntary obligations, transactions are not excluded.
Covered Creditors
Requirements in final rule apply to creditors, as that term is currently defined in Reg Z.
Defined PACE company as a person, other than a natural person or a government unit, that administers the program through which a consumer applies for PACE transaction.
PACE companies substantially involved in making credit decision for a PACE transaction are subject to TILA liability provisions for failure to comply with ability-to-repay (ATR).
TILA and Reg Z Applicability
Requirements in TILA and Reg Z will generally apply to covered PACE transactions.
Exempted PACE transactions from higher-priced mortgage loans (HPML) escrow rule.
Also exempted from periodic statement requirements in mortgage servicing rule.
Ability-To-Repay Requirements
Excluded transactions from eligibility for qualified mortgage (QM) categories in ATR/QM rule, but did not exclude them from the ability-to-repay requirements of ATR/QM rule.
Creditors and PACE companies must make a reasonable and good faith determination of a consumer’s ability to repay at or before consummation of a covered mortgage loan
Consider the eight required factors in making the repayment ability determination.
Must verify that information relied on used reasonably reliable third-party records.
Addressed how existing ability-to-repay requirements may be applied to transactions.
TILA-RESPA Integrated Disclosures
Added a model Loan Estimate and Closing Disclosure for use with PACE transactions.
Included modifications, clarifications, and exemptions related to disclosures in loan estimate and Closing Disclosure requirements to account for unique nature of PACE.
These include provisions related to exemptions from the requirement to provide the escrow account table and related information on Page 4 of the closing disclosure (CD).
Projected payments tables’ disclosure of amounts comprising periodic payment, escrow and taxes, insurance, assessment disclosures to include exemptions and modifications.
Contact information tables to require inclusion of PACE company contact information.
Transaction information disclosures on CD to add disclosures about the PACE company.
Other disclosures table’s liability after foreclosure disclosure to provide modifications.
Exceptions, modifications to permit applicable unit-period tailoring and permit use of specific PACE financing program name that will be recognizable in place of term PACE.
