By S.E. Williams
A closer look at Western Riverside Council of Government’s P.A.C.E. program
Since its inception in 2011, the Home Energy Renovation Opportunity program has expanded rapidly in California. To date, more than 514 million dollars in financing has been extended to homeowners and more than 30,000 residential projects funded.
The program is managed by the Western Riverside Council of Governments (WRCOG) in partnership with San Diego based, Renovate America, who provides the Residential Property Assessed Clean Energy (P.A.C.E.) funding for the projects.
This week, in exclusive interviews with The Voice, Barbara Spoonhour, Director of Energy and Environmental Programs, Western Riverside Council of Governments and Ellen Qualls, Spokesperson for Renovate America, answered a number of pressing questions regarding the program, its benefits and potential pitfalls.
The H.E.R.O. program provides funding for clean-energy home improvement projects and homeowners have welcomed the opportunity to participate.
Many of these homeowners escaped the fate of foreclosure experienced by so many of their economic peers during the Great Recession. They survived the worst downturn in home values in recent history and joined a collective sigh of relief when property values began their slow, upward swing. Having overcome such challenges they looked expectantly toward the future, embraced the promise of clean energy and welcomed the ability to participate its revolution by making environmental friendly improvements to their own homes—an opportunity made possible by the H.E.R.O. program.
Why wouldn’t they choose to participate? The program offers opportunities to enhance their quality of life at home; help create a cleaner environment for their community; and, increase the value of their property in the process.
H.E.R.O. can make all of this possible usually without any upfront investment. Also, there is no credit requirement as FICO scores are not considered in the approval process. (According to Qualls, although it is not used to qualify borrowers—the average FICO score of H.E.R.O. borrowers is 720). Also, for homeowners who do not have a monthly impound account, monthly mortgage payments do not increase.
“Eligibility requirements are based on the property not the property owner,” Spoonhour stressed. The H.E.R.O. program only requires the property owner be current on his/her mortgage payments and property taxes and not have any bankruptcies or property liens. The homeowner’s employment status is not considered. It appears little, if any consideration given to an applicant’s ability to repay the loan.
It appears the most important qualifier for a H.E.R.O. loan is a minimum of ten percent equity in the property.
Interest rates on H.E.R.O. loans are tied to the Swap Index. “It’s the general index that most set their interest rates to,” she explained. “The term and interest rate are based on the life of the product being installed.” Interest rates are fixed and currently range between 6 and 8.35 percent. The term can be 5, 10, 15 or 20 years.
Loan payments 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 face sticker-shock when the first property tax bill comes due.
For example, the average H.E.R.O. loan in Riverside County is $22,000. If that $22,000 is amortized over the maximum allowable term of twenty years at a mid-range interest rate of 7 percent, the homeowner’s property tax bill would be increased by over a thousand dollars every six months.
It is important for homeowners to understand that unpaid H.E.R.O. loan payments morph into delinquent property taxes. If they remain unpaid for a maximum of five years, the property will be sold at a public auction for delinquent taxes.
Another area of significant consideration is how contractors are paid through the H.E.R.O. program as well as how conflicts between homeowners and contractors are resolved. “There is a list of registered contractors that have gone thru training for the H.E.R.O. program,” Spoonhour explained, “Customers are free to select contractors from this list or use their own, provided the contractor is licensed, bonded, insured and authorized to work within the jurisdiction.”
Some customers have complained about what they perceived as price gouging by some contractors. According to Spoonhour, WRCOG/Renovate America requires all contractors to call in their pricing for the products and improvements on each contract. “We use a deviation system so they can be within one or two percentage points of what the costs are for those particular products and improvements in the area.” Both the contractor and the homeowner are advised of any deviations. “Sometimes the contractor will lower the price but it is the consumer’s choice.” In other words if the contractor will not lower the price to within the range of deviation, the homeowner can agree to pay the higher price or consider another contractor.
Qualls expounded, “One advantage of how the program has grown is the agency is now contracting with more than 5,000 companies.” She also claimed the agency only approves projects for amounts within the range of deviation.
Contractors are paid after the property owner has signed-off that the work was completed and they are satisfied with the project provided. This part of the process is clear; but, it does not explain what happens when a homeowner is dissatisfied with the work and refuses to sign a completion certificate. Are WRCOG and/or Renovate America, accountable for helping homeowners seek resolution to contractor conflicts? Critics believe the agencies have protected themselves with the equivalent of a “weasel clause” on this issue. It is easy to understand this perception.
According to Spoonhour, “Property owners enter into a separate aagreement with the contractor. We are the financing mechanism,” she explained and continued, “If the completion certificate is not signed [by the homeowner] the contractor is not paid and the property owner must work it out with contractor.” She added how her agency works to help find resolutions with contractors; and for the most part, has succeeded in finding them—but, not always.
According to Qualls, “It is up to the homeowner and the contractor to reach resolution.” Accordingly, if the contractor is wrong, WRCOG/Renovate America has a compliance program under H.E.R.O. “It is not in the contractor’s best interest to resist.” She said, “We will suspend them if they are not resolving problems with homeowners; but, she qualified, there are also instances when the homeowner is at fault.” Qualls further explained if a resolution is not reached, the contractor could (but not always) be compelled to fix the problem or change the bill to reflect what should have been billed. Occasionally, a representative from Renovate America team will actually go out and inspect the home.
WRCOG/Renovate America offers both dispute resolution and investigative services. “Because of the size of the H.E.R.O. program we have a lot of leverage to make the customer happy and the program’s size and scope is an incentive for contractors to stay with it.” Yet, despite these efforts, there are still instances where homeowners have been forced to seek resolution in the courts.
In situations that cannot be resolved and the contractor is not paid through the program, the agency still appears to be off the hook, “We haven’t financed anything so it is not a H.E.R.O. project,” Spoonhour claimed. Sadly, in these instances contractors can file suit against homeowners who will be left holding the proverbial bag so to speak possibly without any support from the agency.
Another issue that has cast some dispersion on the H.E.R.O. program is related to the loans. The program is structured so the loans stay attached to the property in first position requiring the H.E.R.O. loan to be paid in full before any other fiscal obligation recorded against the property can assume first position. When the homeowner wants to refinance or sell the property, lenders often require the H.E.R.O. loan be resolved. Resolution could include paying the loan in full from the proceeds of the sale/new financing or authorization must be secured from the lender to subjugate the H.E.R.O. loan.
Despite all the program’s safeguards, concerns continue to simmer regarding the long-term impact the program might have on vulnerable segments of the population who participate. Critics are concerned about the risks these individuals take when they transform a sacred asset—the equity in their homes, into a property tax lien that can leave them with a property tax bill beyond what they can reasonably afford to pay.
When asked about this concern Spoonhour replied, “People need to do their due diligence. They are financing a large ticket item. The H.E.R.O. program Is not always the best option for financing for everyone.“ She continued, “We currently talk to property owners during the application process regarding terms and financing amounts and they also receive their financing summary so they can see the impact before the finance process is completed.”
Extra precautions are also taken with any applicant 62 years of age or older. Seniors receive a follow-up telephone call from Renovate America after the application process is completed to insure they understand the terms of the agreement and to be sure they are not being taken advantage of. There is also a three day right of cancellation that is not available with other financing options.
With the H.E.R.O. loans payments tied to property tax bills, the agency is not overly concerned about the potential for tax default sales. “We’ve done projects in more than 38,000 homes in California and there have been less than 10 instances where there was a tax default,” Qualls shared. “It is like any other financing. You have to plan for it.”
However, H.E.R.O. was introduced in 2011 and the five-year-clock that marks time until a property can be sold for back taxes is still ticking for loans initiated that year—2016 and beyond may provide startling revelations regarding the program. In the meantime, borrowers without impound accounts can face exorbitant property tax bills every six months that for some, may be difficult to manage. For example, a homeowner in Riverside County with an average H.E.R.O. loan amount of $22,000 at 7 percent interest amortized over 20 years could face an increase in their property tax bill of over $1,000 every six months. For many, such an amount can be easily managed; but, for others who live payday to payday—it can be a difficult payment to make.
Again, an applicant’s credit rating and income are not considered in the loan application process, neither is the extent of their existing debt or by default, their ability to repay the loan. If the equity is there; if the mortgage is current; if the property taxes are current; if there is no bankruptcy; and, there are no liens—the loan is approved. Only time will reveal the true impact of this creative approach to financing home improvements.
In the meantime, the newly announced Hero Protect initiative may go a long way toward helping to mitigate some of the concerns described here. According to reports, program administrators have already suspended contractors with inactive licenses from participating in the program and more than 60 individuals or contracting companies have been suspended for violations of the program’s Code of Conduct.
Renovate America has a hotline, (888) 720-HERO, staffed Monday through Friday from 9:00 AM to 5:00 PM to respond to complaints related to financing and/ or contractors. Complaints can also be forwarded by email to the agency’s Investigative and Dispute Resolution team via internet at firstname.lastname@example.org.
For more information on the H.E.R.O. program visit www.heroprogram.com.