Yale report vs CFPB
Florida’s PACE program helps homeowners pay for projects for energy conservation and hurricane protection, like replacing your windows or adding hurricane shutters.
But is it actually benefiting homeowners that use it?
The Consumer Financial Protection Bureau published a report in 2023 on residential PACE loans in Florida and California, which found that the loans cause an increase in borrowers falling behind on their mortgage payments, along with other negative credit outcomes.
A recent study, Picking Up the PACE: Loans for Residential Climate-Proofing, took a deeper look at Florida’s PACE loans.
Cameron LaPoint, an assistant professor of finance at Yale School of Management, is one of the researchers. He said they also found a spike in delinquencies of approximately 12% in the first year after a Florida homeowner receives a PACE loan.
“However, we're not using mortgage delinquency data like the CFPB used. We're using property tax delinquency,” he said. “I think that’s important, because the key feature of PACE loans is that you pay them back through your property tax bill. So this would be like a delinquency on the PACE loan itself, as opposed to a primary mortgage.”
LaPoint said that delinquency rate is relative to a home equity line of credit (HELOC) which is a more traditional option for financing home improvement projects, but he said in some cases, many of the PACE participants wouldn’t qualify for a home equity line of credit.
In addition, the report found that PACE borrowers who sell their homes about 2 years after receiving the loan, saw a 27% gain in the value of their home.
LaPoint said that also has an effect on the local taxing authority.
“We found kind of there's individual gains, but there's also gains in terms of the local government and the revenues they're able to collect,” he said.
According to the report, counties with PACE programs received on average around $664 in net tax benefits per borrower-year.
While the study found benefits of the PACE program, there are also concerns. LaPoint said PACE loans can impact your ability to secure a mortgage depending on whether the county you live in has adopted the PACE program.
But, LaPoint said through his research most lenders in Florida view PACE loans as a positive thing.
“Approval rates on mortgages go up in the counties that pass PACE. We think that that's interesting, because it's consistent with the idea that the lenders view this PACE program as improving the value of the housing stock in those areas, and that makes them more willing to lend to these otherwise similar borrowers,” he said.
Doing what it’s supposed to do
As hurricane season becomes more active, the majority of Florida homeowners are using PACE to harden their homes against hurricanes, according to LaPoint. He said it’sis an indication that PACE is working better in Florida compared to California.
“The PACE funds are actually being used towards things that can mitigate the disastrous effects of climate change today, as opposed to potentially in the future,” he said.
The use of PACE loans can also have positive spillover effects in the economy, according to LaPoint.
“So what I mean by that is these home investments are typically being undertaken by registered contractors. They might have small businesses of their own, and they need to to accommodate this influx of demand for home improvement projects,” he said. “They need to hire more people. So that can have positive spillovers to the local economy as well in terms of job creation.”
Current state of PACE
In order for a homeowner to utilize PACE, the county in which they reside has to approve and adopt through an interlocal agreement with one of the special districts that offers PACE financing in Florida.
Mike Moran is the Executive Director of the Florida PACE Funding Agency (FPFA), one of these special districts. He said those agreements vary from county to county.
“For example, on one side of the street, if your air conditioner blows out on a Saturday morning, we might not even be able to finance that until several days later, until, for example, the one community wanted to approve every deal before and oversee it before a private property owner could execute execute a contract,” he said.
Currently, full PACE coverage through FPFA is available in all of Marion County, and parts of Osceola, Volusia, and Seminole counties. It is not available in Orange, Brevard, Lake or Sumter counties, according to its website.
