Last week, The Voice began a report, “Not your average H.E.R.O, the Complexities and Concerns of the Home Energy Renovation Program.” The report not only focused on the ins and outs of the H.E.R.O. program, it paid particular attention to the case of long-time Riverside resident, Henry Blanco, a retired teacher who passed away last November at the age of eighty-five.
Broker Mike Teer of Teer One Properties, Inc., confirmed to The Voice that Blanco contracted to have work done on his property through the H.E.R.O. program that totaled more than $31,000, plus an additional $3,500 per year in interest. The assessment amount was added to Blanco’s property taxes in June, 2016. Sadly, Blanco died within five months of the project’s completion.
Teer and the estate’s administrator inspected the Blanco property and neither of them were able to identify work done on the property that they felt justified the $31,000+ expense, he explained.
Greg Frost, the National Communications Director and Spokesperson for Renovate America, who helps administer the H.E.R.O. Program confirmed his agency had a completion certificate signed by Blanco and dated June 8, 2016. This according to Frost, confirmed Blanco had signed off on the work as being completed to his satisfaction.
Last week, Frost confirmed his agency learned about the Blanco case in mid-March and assigned it to a compliance officer for review. He explained, “The officer believes the work on the outdoor patio cover was done to a high standard.” And added, “The pricing on that project was slightly above the average we see for this sort of project— likely the result of the two ceiling fans that were added.”
This week, Frost confirmed the other major work described in the Blanco contract that involved painting the exterior of the Blanco home was inspected late last week. A Renovate America compliance officer met Thursday at the property with a Life Paint representative to inspect the project for proper application and confirm the product applied was a Life Paint product.”
Frost explained what makes Life Paint exterior paint work as part of the H.E.R.O. program is that it is an energy-efficient, exterior wall coating that has been engineered to last longer than conventional paint; it eliminates color fade, and saves energy by reducing heat absorption. Some also consider it very expensive.
The inspection revealed, “All surfaces, eves and soffits were inspected. All areas appeared to be properly prepped and the required trenching was conducted around the base of the home. The product was deemed to be appropriately applied and was verified as a Life Paint product.” Frost explained and added. “Based on the application and invoices, the appropriate amount of product was purchased for the size of the project.”
Although Teer and the administrator of Blanco’s estate were skeptical of the work completed at Blanco’s property; and even though Frost confirmed the H.E.R.O. contractor who did the work, Yes Electric and Construction, was suspended from the H.E.R.O. Program last November, the lien against the property stands.
In September 2015, the Voice reported how the H.E.R.O. program and mounting consumer complaints against it bore an uncanny commonality with a lending process some speculate played a role in the housing meltdown that lead to the Great Recession of 2008. It’s called—securitization.
A white paper analysis of the Great Recession titled, Securitization: Cause or Remedy of the Financial Crisis noted, “The losses in residential mortgage-backed securities (MBS) were the proximate cause of the meltdown of the financial system in the fall of 2008.” The document further stressed, “At the root of the mortgage problem was a new class of specialized mortgage lenders and securitizers, unrestricted by regulations governing traditional lending and securitization.”
Securitization is defined as taking an illiquid asset or group of assets and through financial engineering, transforming them into a security. A typical example of securitization is a mortgage backed security or MBS.
When Frost, was asked about securitization he explained, “We’ve done a total of nine securitizations, the most recent in December 2016. Keep in mind that the securitizations are the mechanism that enables private capital from around the world to be invested in improving the local housing stock here in California while at the same time allowing Renovate America to scale the program and lower our financing costs.”
In addition, the H.E.R.O. program requires their loans to have the first-lien position. This means it must be paid first if the property is sold or refinanced. This complicates home sales and refinancing negotiations since most lenders refuse to accept a secondary position.
Also, the Federal Housing Finance Agency (FHFA), an organization specifically designed to serve the most fiscally challenged Americans by providing Fannie Mae or Freddie Mac-backed loans to refinance or sell their homes; forbids Fannie Mae and Freddie Mac from buying mortgages or notes that include H.E.R.O. liens. According to reports, the Western Riverside Council of Governments is working to convince FHFA to lift this ban.
H.E.R.O. loans are only billed as a line item on the homeowner’s property tax bill. Unless the homeowner has an impound account and advises the lender to adjust their monthly impound payments to cover the projected increase in the property tax bill, he/she will likely experience sticker shock when the first property tax bill comes due. For example, a $22,000 H.E.R.O. loan at an interest rate of seven percent could increase annual tax payments by as much as $2200 per year.
Many believe that all it really takes for any homeowner to get into trouble with a H.E.R.O. loan is to have equity in his/her home and then leverage that equity through the H.E.R.O. program for energy efficient or renewable energy improvements without fully understanding the rules of the program.
Some believe qualifying for the H.E.R.O. program is almost too easy—approvals are based on the equity in the home not a homeowner’s credit score or ability to pay. In other words, eligibility requirements are based on the property not the property owner.
The program only requires the homeowner be current on his/her mortgage payments and property taxes and not have any bankruptcies or property liens. Employment status is not a factor and little (if any) consideration is given to an applicant’s ability to repay the loan.
Some have questioned whether the H.E.R.O. program borders on the edge of predatory lending—this may be determined by the outcome of a pending law suit, Michael Richardson v. County of Los Angeles et al., case number BC639230—a law suit seeking class action status. This is only one suit among others that are also pending.
Frost, on the other hand, expressed his belief Renovate America has established extended safeguards to protect consumers. Renovate America was the first H.E.R.O. program to roll out the Consumer Financial Protection Bureau’s Know Before You Owe Mortgage disclosure. Also, in the fall of 2016, the company implemented another safe-guard designed to protect consumers when it began recording live phone calls of its agents walking consumers through the details of their loan process.
Readers who are considering participation in Renovate America’s P.A.C.E.-H.E.R.O. program are encouraged to fully understand the program and its ins and outs before you give consent. To learn more about Renovate America and the H.E.R.O. program visit www.renovateamerica.com.