BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    AB 2693


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          Date of Hearing:  April 25, 2016


                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE


                               Matthew Dababneh, Chair


          AB 2693  
          (Dababneh) - As Amended April 11, 2016


          SUBJECT:  Contractual assessments:  financing requirements:   
          property improvements


          SUMMARY:  Makes changes to California's Property Assessed Clean  
          Energy (PACE) Program.   Specifically, this bill:  


          1)Prohibits a public agency from permitting a property owner to  
            participate in PACE unless the property owner has been  
            provided with a federal Truth in Lending Act-Real Estate  
            Settlement Procedures Act Integrated Mortgage Disclosure  
            (TRID) for the obligation being incurred that is required by  
            the federal Consumer Financial Protection Bureau (CFPB). 


          2)Prohibits the public agency from permitting the total  
            mortgage-related debt and contractual assessment-related debt  
            on the property from exceeding the fair market value of the  
            property at the time of the agreement.  


          3)Provides that failure to comply with #1 or #2 above voids the  
            contractual obligations of the property owner.  










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          4)Provides that an assessment shall have the force, effect, and  
            priority of a judgement lien as established by its date of  
            recordation rather than a senior lien. 


          5)Provides that above referenced changes do not apply to  
            nonresidential private property or residential private  
            property with 5 or more units.  


          EXISTING LAW:  


          1)Defines "Property Assessed Clean Energy bond" or "PACE bond"  
            as a bond that is secured by any of the following:



             a)   A voluntary contractual assessment on property  
               authorized pursuant to paragraph (2) of subdivision (a) of  
               Section 5898.20 of the Streets and Highways Code; 



             b)   A voluntary contractual assessment or a voluntary  
               special tax on property to finance the installation of  
               distributed generation renewable energy sources, electric  
               vehicle charging infrastructure, or energy or water  
               efficiency improvements that is levied pursuant to a  
               chartered city's constitutional authority under Section 5  
               of Article XI of the California Constitution; or, 



             c)   A special tax on property authorized pursuant to  
               subdivision (b) of Section 53328.1 of the Government Code.  
               [Public Resources Code, Section 26054]










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          2)Authorizes cities, counties, and other local public agencies  
            and utility districts to provide up-front financing to  
            property owners to install renewable energy-generating  
            devices, make specified water or energy efficiency  
            improvements, or install electric vehicle charging  
            infrastructure on their properties through a system of  
            voluntary contractual assessments which is repaid, with  
            interest, through property tax assessments.  The programs are  
            commonly referred to as the PACE programs. [Streets & Highways  
            Code, Section 5898.10 et seq.]

          3)Requires the California Alternative Energy and Advanced  
            Transportation Financing Authority (CAEATFA) to develop and  
            administer a PACE Reserve program to reduce overall costs to  
            the property owners of PACE bonds issued by an applicant by  
            providing a reserve of no more than 10 percent of the initial  
            principal amount of the PACE bond.  Requires the CAEATFA to  
            develop and administer a PACE risk mitigation program for PACE  
            financing to increase its acceptance in the marketplace and  
            protect against the risk of default and foreclosure. [Public  
            Resources Code, Section 26060]


          4)Allows a community facilities district to finance and  
            refinance the acquisition, installation, and improvement of  
            energy efficiency, water conservation, and renewable energy  
            improvements that are affixed, as specified in Section 660 of  
            the Civil Code, to or on real property and in buildings,  
            whether the real property or buildings are privately or  
            publicly owned. Energy efficiency, water conservation, and  
            renewable energy improvements financed by a district may only  
            be installed on a privately owned building and on privately  
            owned real property with the prior written consent of the  
            owner or owners of the building or real property. This chapter  
            shall not be used to finance installation of energy  
            efficiency, water conservation, and renewable energy  
            improvements on a privately owned building or on privately  
            owned real property in connection with the initial  








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            construction of a residential building unless the initial  
            construction is undertaken by the intended owner or occupant.  
            [Government Code, Section 53313.5]



          FISCAL EFFECT:  None. 


          COMMENTS:  


          AB 2693 addresses two issues that have been raised since the  
          creation of the PACE program.  The measure provides enhanced  
          consumer protections including increased disclosures regarding  
          the financing product being provided and second, reversing the  
          lien status of the PACE lien from a super-priority lien to a  
          judgement lien.  



          Background: 

          In 2008, California enacted the first statewide PACE program  
          through AB 811.  Since 2008, at least 31 other states have  
          created their own programs with variations.  Not all PACE  
          programs carry super-lien status.  PACE is an innovative  
          financing tool that residential or commercial property owners  
          can use to pay for renewable energy upgrades, energy, or water  
          efficiency, or electric vehicle charging stations for their  
          homes or buildings.  Local agencies create PACE assessment  
          districts in their jurisdictions via a resolution of their  
          legislative body, allowing the local agency to issue bonds to  
          finance the up-front costs of improvements.  In turn, property  
          owners enter into a voluntary contractual assessment agreement  
          with the local agency to re-pay the bonds via an assessment on  
          their property tax bill.  The assessment remains with the  
          property even if it is sold or transferred, and the improvements  
          must be permanently fixed to the property.








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          PACE programs typically are more attractive to borrowers and  
          lenders because they can offer a longer pay-back period (up to  
          20 years) with smaller payments than other types of loans, and  
          they are securitized by the property assessment rather than the  
          borrower.  


          Federal Housing Finance Agency (FHFA)


          On July 6, 2010, Fannie Mae and Freddie Mac stated that they  
          would no longer purchase mortgage loans secured by properties  
          with outstanding PACE loans.  The FHFA announcement states,  
          "First liens established by PACE loans are unlike routine tax  
          assessments and pose unusual and difficult risk management  
          challenges for lenders, servicers and mortgage securities  
          investors. The size and duration of PACE loans exceed typical  
          local tax programs and do not have the traditional community  
          benefits associated with taxing initiatives. 


          FHFA urged state and local governments to reconsider these  
          programs and continues to call for a pause in such programs so  
          concerns can be addressed. First liens for such loans represent  
          a key alteration of traditional mortgage lending practice. They  
          present significant risk to lenders and secondary market  
          entities, may alter valuations for mortgage-backed securities  
          and are not essential for successful programs to spur energy  
          conservation." 


          The FHFA announcement can be found here: 


           http://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Statement-on-C 
          ertain-Energy-Retrofit-Loan-Programs.aspx  









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          The State of California and several other parties sued FHFA for  
          not conducting a formal rulemaking before its decision; however,  
          the 9th Circuit Court of Appeals ruled in FHFA's favor in March  
          of 2013.  (County of Sonoma, et al. v. Federal Housing Finance  
          Agency, 710 F.3d 987 (2013)).

          On December 22, 2014, the FHFA once again alerted homeowners,  
          financial institutions, and state authorities of FHFAs concerns  
          with state-level that threaten the first-lien status of  
          single-family loans owned or guaranteed by Fannie Mae and  
          Freddie Mac.  FHFA stated, 


              "The existence of these super-priority liens increases the  
              risk of losses to taxpayers.  Fannie Mae and Freddie Mac,  
              while operating in conservatorship, currently support the  
              housing finance market by purchasing, guaranteeing, and  
              securitizing single-family mortgages.  One of the bedrock  
              principles in this process is that the mortgages supported  
              by Fannie Mae and Freddie Mac must remain in first-lien  
              position, meaning that they have first priority in receiving  
              the proceeds from selling a house in foreclosure.  As a  
              result, any lien from a loan added after origination should  
              not be able to jump in line ahead of a Fannie Mae or Freddie  
              Mac mortgage to collect the proceeds of the sale of a  
              foreclosed property.   Localities offering these PACE loans  
              threaten to move existing Fannie Mae and Freddie Mac  
              mortgages to a second lien position and increase the risk of  
              loss to the Enterprises and, by extension, to taxpayers.  





              In issuing this statement, FHFA wants to make clear to  
              homeowners, lenders, other financial institutions, state  
              officials, and the public that Fannie Mae and Freddie Macs  








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              policies prohibit the purchase of a mortgage where the  
              property has a first-lien PACE loan attached to it.  This  
              restriction has two potential implications for borrowers.   
              First, a homeowner with a first-lien PACE loan cannot  
              refinance their existing mortgage with a Fannie Mae or  
              Freddie Mac mortgage.  Second, anyone wanting to buy a home  
              that already has a first-lien PACE loan cannot use a Fannie  
              Mae or Freddie Mac loan for the purchase.  These  
              restrictions may reduce the marketability of the house or  
              require the homeowner to pay off the PACE loan before  
              selling the house."
          California PACE Loss Reserve Program (LRP)



          In 2013, Senate Bill 96, directed CAEATFA to develop the PACE  
          LRP to mitigate the potential risk to mortgage lenders  
          associated with residential PACE financing. The $10 million Loss  
          Reserve makes the first mortgage lenders whole for any losses in  
          a foreclosure or a forced sale that are attributable to a PACE  
          lien covered under the LRP. The goal of the LRP is to put first  
          mortgage lenders in the same position they would be in without a  
          PACE lien.


          PACE administrators can participate in the LRP by applying to  
          CAEATFA and demonstrating that they meet the LRP's minimum  
          underwriting criteria. Once a PACE program is enrolled, the Loss  
          Reserve will cover assessments issued by that program for their  
          full terms, or until funds are exhausted. Enrolled PACE programs  
          report their financing activity to CAEATFA semi-annually.  To  
          date, no claims have been made on the LRP.  


          In May of 2014, FHFA responded to California's PACE LRP by  
          stating, "FHFA has carefully reviewed the Reserve Fund created  
          by the State of California and while, I appreciate that it is  
          intended to mitigate these increased losses, it fails to offer  
          full loss protection to the Enterprises.  The Reserve Fund is  








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          not an adequate substitute for Enterprise mortgages maintaining  
          a first lien position and FHFA also has concerns about the  
          Reserve Fund's ongoing sustainability."  

          Department of Housing and Urban Development- Federal Housing  
          Administration (FHA)


          In August, 2015, FHA announced the development of Single Family  
          PACE guidance.  The Single Family FHA guidance will address the  
          impact of PACE assessments on purchases, refinances and loan  
          modification options available to borrowers experiencing  
          distress and will require subordination of PACE financing to the  
          first lien FHA mortgage.  FHA stated the guidance at a minimum  
          will include the following: 


           Lien position: only PACE liens that preserve payment priority  
            for first lien mortgages through subordination;
           PACE payment, structure, and term: PACE financing must be  
            fixed rate, fully amortizing loan; 


           Eligible properties: PACE assessments must be attached to  
            single family properties, as defined by FHA, which are 1 to  
            4-unit dwellings, including detached, semi-detached and  
            townhome properties; 


           Equity requirements: PACE liens that preserve payment priority  
            for first lien mortgages will be eligible for financing that  
            does not exceed FHA's maximum combined loan-to-value ratio; 


           Record keeping: PACE liens must be formally recorded and be  
            identifiable to a mortgage lender through a title search; 


           Additional consumer protections: PACE programs must comply  








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            with applicable federal and state consumer laws and should  
            include disclosures to and training for homeowners  
            participating in the program.  












































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          Concerns with PACE:


          Refinancing: A person with a traditional PACE lien which has  
          super priority status will not be able to obtain refinancing  
          with a loan which conforms to current Fannie Mae or Freddie Mac  
          guidelines, which represents the vast majority of conventional  
          refinancing.  Fannie Mae and Freddie Mac policies prohibit them  
          from purchasing a mortgage with a PACE lien on it (discussed  
          further below).  This greatly limits, if not eliminates, the  
          ability of a borrower to refinance the property if there is a  
          PACE super priority lien.  Certain programs have advertised that  
          many homeowners have been able to refinance their property with  
          PACE liens, but it is likely most of those were done prior to  
          July 6, 2010 or the homeowners are using non-conventional  
          financing which may carry higher interest rates.  


          However, a number of PACE programs are offering to subordinate  
          the liens at the request of a homeowner.  While the FHFA has not  
          yet taken a stance on the subordination agreements being offered  
          by these PACE programs it is possible that if the PACE lien is  
          subordinated the homeowner may be able to then refinance their  
          homes with conventional financing. 


          Selling: A homeowner with a PACE lien will have difficulty  
          selling his or her property to buyers with conventional loans.   
          Fannie Mae and Freddie Mac are prohibited from purchasing a  
          mortgage with a PACE lien on it.  Therefore a buyer who is using  
          conventional financing will likely be unable to purchase a home  
          with the lien, as most conventional mortgages will conform to  
          Fannie Mae and Freddie Mac guidelines.


          Sellers would be limited to those persons who are cash buyers,  
          or buyers who have loans from lenders who make loans which do  








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          not conform to Fannie Mae or Freddie Mac guidelines and only  
          where such loans omit provisions restricting the ability to  
          borrow with the super priority lien.

          Lack of consumer protections: The current PACE program lacks  
          disclosure requirements in statute.  Borrowers should fully  
          understand these restrictions prior to taking out a first-lien  
          PACE loan.  PACE loan underwriting conducted by public agencies  
          or private entities lacks basic standards with federal lending  
          laws.  Potential borrowers are not evaluated for their ability  
          to repay, there are insufficient parameters for debt-to-income  
          or loan-to-value ratios, and consumer disclosures are inadequate  
          failing to clearly identify the terms and conditions of the loan  
          and the subsequent impact such loans have on existing mortgages  
          and the consumer's ability to sell or refinance their home.  


          Number of PACE Loans:  It is also unclear how many PACE loans  
          can be made on a single parcel. A single property may therefore  
          have a super-priority lien established for a loan made for solar  
          efficiency, a separate loan for water efficiency and a third  
          loan for seismic strengthening improvements. The potential  
          stacking of these PACE loans further complicates title and the  
          rights of other prior lienholders. 

          AB 2693 will provide much needed consumer protections by  
          requiring specified disclosure requirements about the PACE loan.  
           Additionally, the measure addresses FHFAs announcement which  
          prohibited Freddie Mac and Fannie Mae from purchasing any  
          mortgages with a PACE lien on the property by changing the PACE  
          super-priority lien to a judgment lien.  
















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          PACE:


          Generally, PACE programs begin with a local public agency (such  
          as a city, county or municipal utility district) adopting a  
          resolution to create a Joint Power Authority (JPA) to authorize  
          the creation of a PACE loan program.  The JPA administers the  
          program directly or may contract with a private entity to  
          administer it. The JPA may authorize either local governments or  
          third parties to make loans to homeowners for the conservation  
          improvements.


          When created, it was presumed that public agencies would run the  
          PACE program themselves; instead the majority of cities or  
          counties have contracted out the services to new unregulated  
          private entities to administer the PACE program.  Only two  
          programs run their own PACE program internally:  Sonoma County  
          and Placer County.    



          The programs are funded by either private or public sources, or  
          a combination of both.  For example, Sonoma County has generally  
          used public funds for their residential PACE program.  The  
          residential PACE program in Sonoma County, Sonoma County Energy  
          Independence Program, borrows money from the County, which is  
          then paid back with interest as the lien is paid off by the  
          homeowner.  In other areas, it is primarily private funding.  In  
          PACE programs administered by private entities the bonds are  
          typically issued to private investors to pay the cost of the of  
          the conservation improvements. 


          How does PACE work?  Although details vary between the programs,  
          generally a homeowner who is interested in adding a conservation  
          improvement to his or her home is first advised and sometimes  
          required to have an energy audit conducted on the property to  








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          identify areas of potential conservation improvements. After  
          that, a homeowner contacts a contractor, who typically has to be  
          approved or certified by the PACE program to be eligible to work  
          on the project. The contractor provides an estimate of the costs  
          of the conservation improvement(s) the homeowner wishes to add.   
          The homeowner then applies to the program for approval.   
          Typically there are costs associated with the application. Only  
          once the improvement application is approved, will the work  
          begin. 


          If the project is approved, the entity administering the program  
          will enter into an agreement with the property owner where the  
          entity agrees to pay the cost of the improvement.  An assessment  
          lien is placed on the property for the amount owed plus  
          interest.  After the work is performed, the PACE program entity  
          pays the contractor. The property owner repays the entity for  
          the improvements as a special tax assessment on the property tax  
          bill, generally over a 5 to 20 year period.  The property owner  
          pays the lien in the same manner as he or she would pay property  
          taxes.

          Who uses PACE?-PACE financing is available to property owners in  
          certain cities or counties that have adopted a program. In  
          California, over 400 cities and counties participate in PACE.   
          To qualify, homeowners need to have equity in their home. The  
          homeowner must have no judgment liens or federal or state tax  
          liens.  The homeowner cannot be in bankruptcy.  The property  
          cannot be subject to a bankruptcy proceeding.  The homeowner  
          must not be delinquent on any mortgages.


          According to Ygrene Energy Fund, "PACE is most powerful for  
          people with income. It heavily favors those with household  
          incomes over $70,000. In fact, the higher the income of the  
          property owner, the higher the tax savings and lower the  
          tax-adjusted interest rate. For many income earners, the  
          tax-adjusted interest rate may be negative, putting cash back  
          into the property owners' pocket."








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          PACE Financing:


          PACE was created as a financing alternative for homeowners in  
          hopes of encouraging energy efficiency across the state.   
          Homeowners can use PACE for various energy efficiency  
          improvements such as solar panels, irrigation components,  
          windows, HVAC systems, etc.  PACE allows a homeowner to apply  
          for PACE financing, if approved the money financed runs with the  
          property rather than the homeowner for up to 20 years.  PACE  
          providers encourage homeowners to participate by telling them  
          PACE is: 



           Easy and simple to qualify


           Financing is not based on the owner's annual income 


           Assessments do not appear on your credit report - personal  
            credit score has no impact on funding eligibility or interest  
            rate


           Assessments are paid semi-annually along with your property  
             taxes 


           Assessments may be passed to subsequent property owners


           0% down- 100% financing- no payment until December 2017


           Terms and tax advantages deliver the lowest monthly payments -  








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            saving you 50% or more over traditional financing.

          Prepayment penalties: According to the Sonoma County program:  
          initial bond financing for improvements is held by the Sonoma  
          County Treasury, and there is no penalty while the County  
          Treasury holds the note. However, in order to continue to  
          provide funding for Program growth, this investment will at some  
          point be converted to long-term bonds. Bond purchasers generally  
          require an early payment penalty/premium of up to 3%, based on  
          current conditions. Please note that while a homeowner can pay  
          off the assessment completely, the County of Sonoma cannot  
          accept partial prepayments.  Because PACE Financing is through  
          the sale of bonds, any early payoff would need to include  
          interest due until the next semi-annual bond payment date, which  
          under state law is either March 2 or September 2. 



          Interest rates: Interest rates vary depending on the program,  
          but tend to be higher than they would be for home equity loans.   
          A review of various programs showed rates in a range from 6.95  
          to 9.25% which varied on a number of factors including the  
          amount borrowed, and the duration of the assessment.

          In the News:


           Mark Chacon: Energy-efficiency loans could cause homeowner  
            headaches
          Even if you can afford to pay off the liens before the sale  
          closes, that reduces the amount you can realize from the sale.  
          And even if you find an all-cash buyer, because the assessment  
          will transfer with the property, that's an added cost many  
          prospective buyers won't want to deal with.


          Steve Lista found that out the hard way. He put his five-bedroom  
          home in Riverside County on the market in June but couldn't find  
          a buyer willing to take on the $3,000-a-year assessment for his  








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          $27,000 solar panel system.


          (  http://www.vcstar.com/opinion/columnists/mark-chacon-energy-effi 
          ciency-loans-could-cause-homeowner-headaches-2f20c692-4bb8-17c7-e 
          053-0100007f-375102471.html  )


           Energy improvement program can hobble home sales


          When Patti Smith sought a refinance last year for her senior  
          community home in San Diego County, she had to pay off a $14,774  
          HERO loan she previously took out for an air-conditioning unit,  
          tankless water heater and replacement ductwork.


          "I was flabbergasted when our mortgage company told us we had a  
          lien," said Smith, 62. "The contractor who pushed the HERO  
          program never mentioned the word 'lien.' If he would have we  
          would have never done it."


          Smith said she also had to pay a penalty of $1,734.14 to HERO  
          for paying off the loan early. The HERO program has since waived  
          the penalty fee for homeowners.


          (  http://www.sacbee.com/news/business/real-estate-news/article2752 
          8559.html#storylink=cpy  )


           A Growing Green Debt?


          Last September, Erin Stumpf of Dunnigan Realtors met with a  
          homeowner in Sacramento's Tallac Village neighborhood. The owner  
          wanted to sell, and she'd replaced her yard with artificial  
          turf, taking out a $7,000 PACE loan to do it. "Oh, but don't  








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          worry," the homeowner told Stumpf. "The PACE loan will be  
          transferred to the new owner."


          Stumpf had to explain that wasn't true. The prospective buyer  
          likely wouldn't be able to get a mortgage because of the PACE  
          loan  - Fannie Mae and Freddie Mac, which guarantee 90 percent  
          of the country's home loans, won't do so for properties with a  
          PACE lien. The seller fortunately had enough home equity and  
          used it to pay off her turf at the time of the sale. 


          Because she cleared her loan early, she was also hit with a  
          prepayment penalty of at least $800, Stumpf says. "The way this  
          was sold to my client and the way that it's sold to the public  
          in general is really misleading," Stumpf says.


          (  http://www.comstocksmag.com/article/growing-green-debt  )


           Clean Energy Loans Make Sales Messy- Wall Street Journal-  
            11/7/2015


          Lori Laine's foray into a California clean-energy program made  
          it tough for her to sell her house and ended up costing her  
          hundreds of dollars and months of aggravation.


          The culprit: a nearly $8,000 loan she took out last year to pay  
          for a new air-conditioning unit to replace her broken one, part  
          of a statewide push to promote clean energy with low-interest  
          loans.


          "I would never do this again," Ms. Laine said.










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          Ms. Laine said her air-conditioning contractor told her the  
          financing would transfer to a new owner if she sold the home,  
          though she admits the documents she signed from San Diego-based  
          lender Renovate America Inc. stated there could be difficulties.


          When she tried to sell her Highland, Calif., home last October,  
          the buyer said Ms. Laine would need to pay off the balance in  
          full before the buyer could get a mortgage.


          Ms. Laine took the home off the market in hopes the rules would  
          change, but earlier this year, she gave in and paid it off in  
          order to sell the house.


          Arguments in Support:


          According to the California Association of Realtors, the  
          California Bankers Association, the California Credit Union  
          League, the California Escrow Association, the California  
          Mortgage Association, the United Trustees Association and the  
          California Mortgage Bankers Association, AB 2693 will require  
          that consumers receive the same Truth in Lending Disclosures  
          about the PACE loan as they are entitled to receive in  
          connection with any other home equity loan.  There should be no  
          confusion in the mind of either the Committee Members or  
          homeowners- these encumbrances might be labeled "assessments,"  
          but they are really loans and they come at the expense of the  
          homeowner's equity in the property.  The federal Consumer  
          Financial Protection Bureau has recently released a universal  
          Truth in Lending Disclosure that applies to every consumer loan,  
          and consumers and homeowners should receive it in PACE loans  
          too.  Unfortunately for homeowners, if they don't receive a  
          Truth in Lending Disclosure they cannot effectively shop for  
          financing of energy conservation improvements, and cannot make  
          an "apples to apple" comparison of the loans to finance the home  
          improvement.  








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          The super priority of PACE liens has caused the secondary market  
          (Fannie Mae and Freddie Mac; and soon FHA as well) to refuse to  
          finance or re-finance a property with a PACE lien remaining  
          attached, consequently affecting the liquidity of the lending  
          market in CA.  In a statement issued in December 2014, the FHFA  
          wanted to "make it clear to homeowners, lenders, other financial  
          institutions, state officials, and the public that Fannie Mae  
          and Freddie Mac's policies prohibit the purchase of a mortgage  
          where the property has first-lien PACE loan attached to it.  The  
          statement by the FHFA has two implications for borrowers:   
          first, a homeowner with a first lien PACE loan cannot refinance  
          their existing mortgage with a Fannie Mae or Freddie Mac  
          mortgage.  Second, anyone wanting to buy a home that already has  
          a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac  
          loan for the purchase.  


          Arguments in Opposition: 


          According to the California State Association of Counties and  
          the League of California Cities, "eliminating the senior lien  
          status of PACE assessments would essentially prohibit the use of  
          property tax assessments to secure the financing, the major  
          attractant of the program.  AB 2693 creates a financing  
          structure that would make PACE unaffordable, unsustainable and  
          unavailable.  Not only does that structure attack the very  
          foundation of PACE, it does so without regard to options already  
          available in the marketplace enabling PACE contractual  
          assessments to be limitedly subordinated to a first deed of  
          trust."


          According to Renovate America, "If passed, AB 2693 would strike  
          a devastating blow to PACE by removing the very features of the  
          program which motivate consumer behavior by converting the lien  
          from an assessment lien to a judgment lien.  A judgment lien, by  








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          its legal character, is unable to have 20-year financing terms,  
          like PACE currently allows, or transfer from owner to owner,  
          like PACE currently allows.  It would eliminate the ability of  
          homeowners to finance products over their entire useful life,  
          forcing them to elect higher monthly payments or making PACE  
          financing altogether unaffordable.   Further, a judgment lien is  
          extinguishable by foreclosure, jeopardizing the security and  
          credit rating of the bonds issued by local government and,  
          therefore, the end price to the consumer.  Converting the PACE  
          lien to a judgment lien would gut the structure of PACE, making  
          it an uncompetitive form of lender financing that raises costs  
          to consumers and reinstates the very market failure PACE was  
          created to address."


          Previous Legislation:


          AB 2597 (Ting, Chapter 614, Statutes of 2014) revised the  
          CAEATFA underwriting standard for the PACE program by increasing  
          the maximum amount of an assessment from 10 percent to 15  
          percent of the property value and specifies that PACE financing  
          is an "assessment" or "financing" (as appropriate) and not a  
          "loan."  


          AB 1883 (Skinner, Chapter 599, Statutes of 2014) allowed a  
          public agency to transfer voluntary contractual assessments, if  
          bonds have not been issued, as specified.  


          SB 96 (Committee on Budget and Fiscal Review, Chapter 356,  
          Statutes of 2013) required the California Alternative Energy and  
          Advanced Transportation Financing Authority to develop and  
          administer a risk mitigation program for PACE loans.


          SB 555 (Hancock, Chapter 493, Statutes of 2011) added the  
          acquisition, installation, and improvement of energy efficiency,  








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          water conservation, and renewable energy improvements that are  
          affixed to the types of facilities that a community facilities  
          district (CFD) may finance, or refinance, regardless of whether  
          the buildings or property are privately or publicly owned.  

          SB 1340 (Kehoe, Chapter 649, Statutes of 2010) expanded the use  
          of voluntary contractual assessments to finance electric vehicle  
          charging infrastructure and correspondingly expanded the PACE  
          bond reserve program.

          SB 77 (Pavley, Chapter 15, Statutes of 2010) authorized CAEATFA  
          to develop and administer a state PACE bond reserve program to  
          pay bondholders in the event a PACE program had insufficient  
          funds, which would reduce risk to bondholders and facilitate  
          smaller interest rates.  CAEATFA has suspended development of  
          this program pending resolution of FHFA's concerns described  
          above.

          AB 44 (Blakeslee, Chapter 564, Statutes of 2010) expanded the  
          use of voluntary contractual assessments to include financing of  
          power purchase agreements, and prohibited contractual  
          assessments if the total amount of the assessments and taxes on  
          the property exceeds 5% of the property's market value.

          AB 474 (Blumenfield, Chapter 444, Statutes of 2009) expanded  
          local agencies' PACE authorization to include water efficiency  
          projects.

          AB 811 (Levine, Chapter 159, Statutes of 2008) authorized all  
          cities and counties in California to designate areas within  
          which city officials and willing property owners may enter into  
          contractual assessments to finance the installation of  
          distributed generation renewable energy sources and energy  
          efficiency improvements.  


          Double-referral:










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          This measure is double referred to the Assembly Local Government  
          Committee. 


          Recommended Amendments:


          


          The suggested amendments attempt to address the issues raised by  
          the opposition.  The amends will delete the disclosure  
          provisions in the bill referencing TRID and instead codify  
          disclosure requirements in statute so all entities using the  
          PACE program will have to provide the same disclosures to  
          borrowers.  Additionally, the amends address the concerns around  
          changing the super lien priority by stating that in the event of  
          a foreclosure by the purchase money (or refinanced purchase  
          money) lender, the delinquency on a PACE encumbrance is junior  
          to the purchase money, but the encumbrance itself survives.  The  
          amendments also clarify that the measure is prospective.  


          On page 9, delete lines 1-29 and insert: 






          Streets and Highway Code- 5898.15.
           (a) A public agency shall not permit a property owner to  
             participate in any program established pursuant to this  
             chapter if:
             (1)  The owner's participation would result in the total  
               amount of any annual property taxes and assessments  
               exceeding 5 percent of the property's fair market value, as  
               determined at the time of approval of the owner's  
               contractual assessment; or








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             (2)  The total mortgage-related debt and contractual  
               assessment-related debt on the underlying property would  
               exceed the fair market value of the property, as determined  
               at the time of the owner's contractual assessment; or
             (3)   The mortgage-related debt on the property is equal to  
               90% or greater of the property's fair market value, as  
               determined at the time of approval of the owner's  
               contractual assessment; or
             (4)  The property owner is unable to meet all of the  
               following criteria:
                  a.        The property owner must certify that property  
                    tax for the subject property are current and that  
                    there is no more than one late payment during the  
                    previous three years or the period of time during  
                    which the property owner has owned the subject  
                    property, whichever is less. 
                  b.        The property owner must certify that he or she  
                    is not currently in default on any debt secured by the  
                    subject property, and that there is no more than one  
                    late payment (30 days maximum) during the 12-month  
                    period preceding the time of the owner's contractual  
                    assessment.
                  c.        No homeowner applicant has had any active  
                    bankruptcies within the last 7 years; provided  
                    however, that this criterion can be met if a  
                    homeowner's bankruptcy was discharged between two and  
                    seven years before the application date, and the  
                    homeowner(s) have had no payments (mortgage or  
                    non-mortgage) past due for more than 60 days in the  
                    most recent 24 months; and 
                  d.        The property owner(s) have no involuntary  
                    lien(s) recorded against the Property in excess of  
                    $1,000.
          (b) A public agency shall not permit a property owner to  
          participate in a program pursuant to this chapter unless the  
          property owner has been provided with a completed Financing  
          Estimate set out in Section 5898.15.5, or a substantially  
          equivalent document that displays the same information in a  
          substantially similar format 








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          (c) Failure to comply with the requirements of either subsection  
          (a) or (b) renders the contractual obligations of a property  
          owner for a contractual assessment entered into pursuant to this  
          chapter void. 
          (d) Except as provided in subdivision (b), nothing in this  
          chapter shall be construed to void or otherwise release a  
          property owner from the contractual obligations incurred by a  
          contractual assessment on a property.



          1)Add Streets and Highway code Section 5898.15.5 and insert the  
            following language: 



          5898.15.5.  The disclosure set out below shall be completed and  
          delivered to a homeowner as soon as practicable before, and in  
          no event later than when, a homeowner becomes obligated on an  
          agreement to a voluntary assessment described in Section 26054  
          of the Public Resources Code, Chapter __, commencing with Sec.  
          5898 of this code, or Section 53328.1 of the Government Code. 
                     P.A.C.E. Financing Estimate and Disclosure 

          Notice to Homeowners:  The financing arrangement described below  
          will result in an assessment against you property which will be  
          collected along with your property taxes. The assessment may  
          jeopardize your ability to sell or refinance your property  
          unless you repay the underlying debt. 

          There may be cheaper alternative financing arrangements  
          available from conventional lenders. You should read and review  
          the terms carefully, and if necessary, consult with a tax  
          professional or attorney.   

           Products and Costs  

          Product costs (including         Description   
            labor/installation)           $___________1. 








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                                          2.
                                          3.

           Financing Costs  

          Application fees and costs$___________

          Prepaid Interest                   $___________

          Other Costs                     $___________

          Total Amount Financed              $   ___________  


           Annual Percentage Rate (APR)    _______%

          Simple Interest Rate            _______%

          Total Annual Principal, Interest and
          Administrative Fees           $__________Note: If your property  
          taxes
                                        are paid through an impounds
                                        account, your lender may 
                                        apportion the amount and add
                                        it to your monthly payment.      
          See "Other considerations", below

           Total Amount you will have paid  
           over the life of the loan  $__________


           Other Costs            
            Appraisal fees                   $___________
            Bond related costs                 $___________
            Annual Administrative fees$___________
            Estimated closing costs$___________
            Credit Reporting Fees            $___________
            Recording Fees    $___________
            








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           Total Financing Costs and Closing Costs  $   ___________  
            
          Estimated cash (out of pocket)
            to close                    $___________


           Other Terms  
            Prepayment fee      /_/  No/_/ Yes  _________

            Assumable by new owner /_/ No/_/ Yes


           Additional Information About This Financing  

           Comparisons   [Use this information to compare to other financing  
          options]
          ------------------------             $___________ Principal you  
          will have paid off.
                         $___________ Amount of interest paid.
            In 10 years    $___________ Amount of financing and other 
                                   costs you will have paid.
                         $___________ Total you will have paid.
          ------------------------
          Annual Percentage Rate (APR)___________%

          ------------------------
          Total Interest Paid (as a percentage
          of all the payments you have made)___________%


           Other Important Considerations  
          Assumption by New Buyer/_/ Yes - Allowed on original terms
                                /_/  No - Not allowed on original terms

                                   I understand that if I refinance my  
          home, my 
                                   mortgage company may require me to pay  








                                                                    AB 2693


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          off the
                                   full remaining balance of this  
          obligation.  
                                   If I sell my home, the buyer or their  
          mortgage 
                                   company may require me to pay off the  
          full                                                           
          remaining balance of this obligation.
                                   _______________
                                   [Borrower initials]

          Monthly Mortgage PaymentsYour payments will be added to your  
          property tax
                                bill.  Whether you pay your property taxes  
                      through                                               
                                                                            
                                                                            
                                                              your  
                      mortgage payment, using an impound account, or if  
                      you pay them directly to the Tax                      
                          Collector, you will need to save an estimated 
                         $_______ for your first tax installment. After  
               your                                                         
                                                                            
                                                                 first  
               payment, if you pay your taxes through an           impound  
               account your monthly mortgage payment should be adjusted by  
               your lender to cover your 
                                increased property tax bill.
                                   _______________
                                   [Borrower initials]

          Tax Benefits          Consult your tax advisor regarding tax  
                 credits, [credits and deductions] tax deductibility, and  
                 other tax benefits available. Making an 
                           appropriate application for the benefit is your  
                 responsibility.
                                   _______________
                                                                                           [Borrower initials]








                                                                    AB 2693


                                                                    Page  28






           Confirmation of Receipt  
          This confirms the receipt of the information in this form. You  
          do not have to accept this financing just because you  
          acknowledge that you have received or signed this form, and it  
          is NOT a contract. 


          ________________________________________________________ 
          [Property Owner Signature - Date][Property Owner Signature -  
          Date]


          2)On page 11, delete lines 4-5 and insert: 
          "subject to (3) below, retain the sole right to enforce its  
          senior lien status.    


           (3) When a holder of a note secured by a deed of trust for  
          purchase money, or a refinanced purchase money obligation  
          institutes a foreclosure; or when the public agency institutes a  
          foreclosure, the interest of the purchase money note holder  
          shall be treated as an encumbrance that is senior to any  
          delinquency of a voluntary assessment described in Section 26054  
          of the Public Resources Code, commencing with Sec. 5898 of this  
          code, or Section 53328.1 of the Government Code.  The seniority  
          of the purchase money obligation shall be retained regardless of  
          whether the delinquency occurred before or after the purchase  
          money obligation was recorded against the property. In enacting  
          this Section, the Legislature recognizes that the voluntary  
          special assessments authorized by this Chapter are unique, and  
          require unique treatment of their secured priority. This Act  
          shall not be interpreted or applied to affect the status or  
          priority of any municipal or county lien other than a lien  
          addressed in this Section, nor shall it create any implied  
          precedent for the interpretation of any other remedy or  
          collection mechanism available to a governmental entity.  The  
          change in priority effected by this Act shall apply to  
          assessments agreed to after January 1, 2017.  








                                                                    AB 2693


                                                                    Page  29





           
          


          REGISTERED SUPPORT / OPPOSITION:




          Support


          California Association of Realtors (Sponsor)
          California Bankers Association (Sponsor)
          California Credit Union League (Sponsor)
          California Escrow Association (Sponsor)
          California Mortgage Association (Sponsor)
          California Mortgage Bankers Association (Sponsor)
          United Trustees Association (Sponsor)
          California Community Banking Network (CCBN)
          Community West Bank
          Valley Republic Bank


           
           Oppose unless Amended
           
           California Association of County Treasurers and Tax Collectors  
          (CACTTC)


          Opposition


          Applied Building Science (ABS)
          Brower Mechanical, Inc.
          California Chapters of the National Electrical Contractors  
          Association (NECA)
          California Energy Efficiency Industry Council








                                                                    AB 2693


                                                                    Page  30





          California League of Conservation Voters (CLCV)
          California Legislative Council of the Plumbing, Heating and  
          Piping Industry (CLC)
          California State Association of Counties (CSAC)
          Center for Climate Protection
          Clarke & Rush
          Climate Action Plan
          Community Action Agency of Butte County
          Eco Performance Builders
          Efficiency First California
          Energy Masters
          Energy Resolutions, Inc.
          Environmental Defense Fund (EDF)
          J R Construction - SOL SOLUTIONS
          JR Putman Inc.
          League of California Cities (LCC)
          McClelland Air Conditioning
          PACE Equity
          PACE Funding Group
          PACENation
          Placer County Contractors Association (PCCA)
          Placer County Treasurer-Tax Collector
          PROgressive Insulation & Windows
          PROS360
          Renew Financial
          ReNewAll
          Renovate America
          Sonoma County Board of Supervisors
          Sonoma County Water Agency (SCWA)
          South Bay Cities Council of Governments (SBCCOG)
          Syntrol
          Vote Solar
          Western Riverside Council of Governments
          Ygrene Energy Fund
          12 individuals












                                                                    AB 2693


                                                                    Page  31






          Analysis Prepared by:Kathleen O'Malley / B. & F. / (916)  
          319-3081