PACE Loan Defaults Rising as American Borrowers Miss Payments on Green Energy Loans

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Growing Number of Borrowers Defaulting on Green Energy PACE Loans

Recent research shows that an increasing number of Americans are defaulting on their green energy loans taken under the Property Assessed Clean Energy (PACE) program.

Tax data of borrowers in the biggest market of PACE loans—California—reveals that the number of borrowers who have missed two consecutive loan payments has significantly jumped in the past one year. Alternatively put, the borrowers are in default.

Americans are showing interest in installing green energy solutions to reduce their carbon footprint. But a good number of homeowners cannot afford to do it out of their own pockets. This is where the PACE program comes in.

The PACE loans, which allow borrowers to fund their green energy purchases like solar panels and eco-friendly electronic home appliances, are one of the fastest growing loan categories in the country today.


However, despite the lenders’ claims that no homeowners in the PACE program have ended up in foreclosures, the growing number of missed payments is a clear indication that a significant number of homeowners could be forced to auction their homes in the next five years.

The Wall Street Journal recently analyzed the tax data of borrowers in 40 counties within California and found that nearly 1,100 borrowers have missed two consecutive loan payments in the past year, compared to only 245 a year ago.

The average amount of a PACE loan is about $25,000 but the amount substantially inflates in case of non-payments due to high interest rates. The average annual interest rate that accrues on these loans is 18%.

Although the loans are made by private lenders, they are collected by the local governments. For private lenders, the great incentive in PACE loans is the high interest rates and seniority in claims. In case of default and auction of a house, PACE loan lenders get to receive their share before the mortgage lenders.

However, the growing number of defaults may start discouraging these lenders to take the risk of making these loans. As of now, nearly 140,000 loans have been made under the PACE program nationwide, amounting to about $3.6 billion in value.



More Borrowers Are Defaulting on Their ‘Green’ PACE Loans,” The Wall Street Journal, August 15, 2017.


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