This story was originally published by Pro Publica.
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One of the nation’s largest residential “clean energy” lenders has suspended lending to Missouri homeowners, citing economic conditions and a new state law requiring more consumer protection and oversight.
The 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 more profitable business. No other states have large Residential Assessed Clean Energy programs, although dozens of states allow them for commercial borrowers.
An Ygrene spokesman said Thursday that the company wanted to shift its focus to other areas of the country where it would find profit opportunities. The spokesman said that legislative reforms in Missouri were a “small factor” in the company’s decision to stop lending to homeowners there, although a company executive said the reforms likely contributed to a decline in loan applications.
In its investigation, ProPublica found that Missouri PACE lenders, including Ygrene, charged high interest rates for terms up to 20 years, collected loan payments through tax bills, and enforced debt through mortgage liens — all of which left some borrowers vulnerable to their homes lose if they default.
We analyzed approximately 2,700 loans originated in the five counties with the state’s most active PACE programs 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. When loans are not repaid, the local government can confiscate a borrower’s property.
PACE was marketed to fund energy saving renovations with no upfront cost. Missouri law required that the energy savings on any project be at least equal to the cost of the loan, but many borrowers said they don’t always see that much savings. ProPublica found that while state law allowed PACE programs to conduct audits to ensure borrowers were saving money on their energy bills, it was not required and PACE programs in the St. Louis and Kansas City areas typically did not conduct them .
The programs targeted many at-risk homeowners, including people who needed urgent repairs but had few credit options. ProPublica found that some Ygrene loans in the St. Louis area were made to owners of homes with exceptionally low real estate values; In several cases, the amount of the loan exceeded the value of the entire property as reported by the local appraiser. Ygrene and other PACE lenders had used private estimates, which were often much higher.
Missouri’s new law required PACE programs to base loans on local government estimates, a change that severely limited the availability of credit for owners of low-value homes.
The law also required that residential PACE programs be reviewed by the state Treasury Department at least every two years. Previously, PACE programs were required to submit annual reports to the state, but ProPublica’s research 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 improvements, particularly in predominantly black neighborhoods where traditional lenders don’t typically do much business. Before the new law, Ygrene said, it tightened its standards by ensuring borrowers had a record of paying property taxes on time and by using more conservative property valuations to underwrite loans. The company said it has also lowered its delinquency rates since the program began making home loans.
An executive at Ygrene told the City of St. Louis’ Clean Energy Development Board Wednesday that the company plans to take a year-long hiatus from issuing new loans, beginning Aug. 18.
“This is simply because of the interest rates and economic conditions that currently make the program unviable,” Jim Malle, Ygrene’s director of government affairs, told the board. He also said the company has seen a drop in new loan applications “and we believe this is due to the Missouri Legislature.”
The board, which just months ago renewed Ygrene’s contract as home loan administrator, said it could have determined the company was not fulfilling its contract with the city, but agreed to suspend the program for at least three months and reconfirm the decision evaluate quarterly.
Neal Richardson, executive director of the city’s development agency and board member for clean energy development, said the city will use money from the Federal American Rescue Plan Act to help homeowners with energy projects and home repairs.
A representative from the St. Louis County PACE program, which also uses Ygrene, could not be reached for comment.
Ygrene had been competing for market share in Missouri with another company, the 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, and throughout the state in the Kansas City area.
St. Louis County Assessor Jake Zimmerman, who has criticized PACE programs and last year urged the county council to “out of this business‘ said that while Ygrene’s departure was good, he was concerned that other companies might enter the market.
David Pickerill, executive director of MCED, said his district is still lending, but business has “quite gone down, I think, because of the economy and inflation and various factors.” He said it’s possible that “the people who have made the best use of the PACE program have already done so.”
Ygrene doesn’t get out of the lending business entirely. 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 less likely to default than private borrowers.
The company announced this last year Offered by PACE for homeowners in Ohio in a partnership with the Toledo-Lucas County Port Authority. The Port Authority had run its own successful small PACE program, which offered affordable loans in the northwest Ohio city. But port officials said they need a national company to offer loans nationwide. Ygrene removed all mention of Ohio from his website months ago. Port officials have not responded to questions about the status of the project.
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