One of the nation’s largest ‘clean energy’ residential lenders suspended homeowner loans in Missouri, citing economic conditions and a new state law that required more consumer protection and oversight. .
California-based Ygrene Energy Fund said it will also stop lending in California, but will continue to lend to homeowners in Florida, where it can lend for wind and hurricane protection, a business more viable. No other state has large property-rated residential clean energy programs, although dozens of states allow them for commercial borrowers.
The measures in Missouri were enacted last year, after a ProPublica survey found that high-interest PACE loans were disproportionately burdening borrowers in predominantly black neighborhoods.
A spokesperson for Ygrene said on Thursday the company wanted to focus on other parts of the country where it would find profit opportunities. The spokesperson said law reforms in Missouri were a “small factor” in the company’s decision to stop lending to homeowners there, although a company executive said that the reforms had probably contributed to a drop in loan applications.
In its investigation, ProPublica found that Missouri PACE lenders, including Ygrene, were charging high interest rates for terms of up to 20 years, collecting loan repayments through tax bills, and running debts. by placing liens on the property – which left some borrowers vulnerable to losing their homes in the event of default.
We analyzed approximately 2,700 registered loans in the five counties with the most active PACE programs in the state and found that 28% of borrowers in predominantly black neighborhoods were at least one year behind on their loan repayments. , compared to 4% in predominantly white areas. If the loans are not repaid, the local government can seize the borrower’s property.
PACE was marketed as a way to fund energy-efficient home improvements with no upfront cost. Missouri law required that each project’s energy savings be at least equal to the cost of the loan, but many borrowers said they didn’t always see that much savings. ProPublica found that while state law allowed PACE programs to perform audits to ensure borrowers were saving money on their energy bills, it did not require them, and PACE programs in St. Louis and Kansas City areas generally did not perform them.
The programs targeted many vulnerable homeowners, including people who needed urgent repairs but had few credit options. ProPublica found that some Ygrene loans in the St. Louis area had gone to owners of homes with exceptionally low land values; in several cases, the amount of the loan exceeded the value of the entire property according to the local appraiser. Ygrene and other PACE lenders had used private appraisals which were often much higher.
The new Missouri law required PACE programs to base loans on local government assessments, a change that sharply reduced the availability of loans to homeowners with low property values.
The law also required that residential PACE programs be reviewed by the State Finance Division at least every two years. Previously, PACE programs had to submit annual reports to the state, but ProPublica’s investigation found there was little oversight.
PACE officials and its lenders said the program’s interest rates tend to be lower than some credit card and payday lenders, providing much-needed financing for home improvement, especially in low-income neighborhoods. predominantly black where mainstream lenders generally don’t do much business. . Prior to the new law, Ygrene said, it had tightened its standards by ensuring borrowers had a history of paying property taxes on time and using more conservative property appraisals to underwrite loans. The company said it has also reduced its delinquency rates since the program began providing residential loans.
A Ygrene executive told the City of St. Louis Clean Energy Development Board on Wednesday that the company wants a one-year break from making new loans, starting Aug. 18.
“This is simply due to interest rates and economic conditions that make the program unsustainable at this time,” Jim Malle, director of government affairs at Ygrene, told the board. He also said the company has seen a reduction in new loan applications “and we believe this is due to Missouri law.”
The council, which only a few months ago renewed Ygrene’s contract to act as residential loans administrator, said it could have found the company in default of its contract with the city, but has agreed to suspend the program for at least three months and reassess the decision. quarterly.
Neal Richardson, executive director of the city’s development agency and member of the clean energy development board, said the city would use money from the US federal bailout law to help homeowners with energy projects and home repairs.
A representative for the St. Louis County PACE program, which also uses Ygrene, could not be reached for comment.
Ygrene had competed for market share in Missouri with another entity, Missouri Clean Energy District. While Ygrene dominated the market in St. Louis and St. Louis County, MCED operated primarily in St. Charles County, west of St. Louis, as well as statewide in the region of Kansas City.
St. Louis County Assessor Jake Zimmerman, who has criticized PACE programs and last year urged the county council to “get out of this case,” said that while Ygrene’s departure was well, he was worried about other companies entering the market.
David Pickerill, executive director of MCED, said his district was still making loans, but business was “a bit down, I think, due to the economy, inflation and various factors.” He said it was possible “the people who were best placed to use the PACE program have already done so”.
Ygrene is not completely withdrawing from the lending business. The company recently announced that it has secured investments from two venture capital firms to expand other types of residential and commercial loans nationwide, including those not secured by collateral. Ygrene also offers PACE loans for commercial projects; these loans have not attracted as much attention from regulators because they tend to involve borrowers with more experience and access to capital who are not as likely as residential borrowers to default.
The company announced last year that it was offering PACE to Ohio homeowners through a partnership with the Port Authority of Toledo-Lucas County. The Port Authority had successfully run its own small-scale PACE program that offered affordable loans in the northwest Ohio town. But port officials said they needed a national corporation to help offer loans statewide. Months ago, Ygrene removed all mention of Ohio from its website. Port officials did not respond to questions about the progress of the project.