One of the nation’s biggest residential “clean energy” lenders has suspended making loans to homeowners in Missouri, citing economic conditions and a new state law that mandated more consumer protections and oversight.
Ygrene Energy Fund, based in California, said it will also stop lending in California, but will continue lending to homeowners in Florida, where it can make loans for wind and hurricane protection, a more viable business. No other states have large residential Property Assessed Clean Energy programs, although dozens of states allow them for commercial borrowers.
The measures in Missouri were signed into law last year, after a ProPublica investigation found that the high-interest PACE loans disproportionately burdened borrowers in predominantly Black neighborhoods.
A Ygrene spokesperson said Thursday that the company wanted to turn its focus to other areas of the country where it would find opportunities for profit. The spokesperson said that legislative reforms in Missouri were a “small factor” in the company’s decision to stop making loans to homeowners there, although a company executive said the reforms had likely contributed to a decline in loan applications.
In its investigation, ProPublica found that PACE lenders in Missouri, including Ygrene, charged high interest rates over terms as long as 20 years, collecting loan payments through tax bills and enforcing debts by placing liens on property — all of which left some borrowers vulnerable to losing their homes if they defaulted.
We analyzed about 2,700 loans recorded 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 in repaying their loans, compared with 4% in mostly white areas. If loans are not repaid, the local government can seize a borrower’s property.
PACE was marketed as a way to finance energy-saving home improvements without upfront costs. Missouri law required the energy savings from each project to at least equal the cost of the loan, but many borrowers said they did not always see that much in savings. ProPublica found that while the state law authorized PACE programs to do audits to ensure that borrowers saved money on their energy bills, it did not require them, and PACE programs in the St. Louis and Kansas City areas did not typically perform them.
The programs targeted many vulnerable homeowners, including people who needed urgent repairs but had few options for credit. ProPublica found that some Ygrene loans in the St. Louis area were issued to owners of homes with exceptionally low property values; in several cases, the size of the loan exceeded what the local assessor said the entire property was worth. Ygrene and other PACE lenders had used private appraisals that were often much higher.
The new Missouri law required PACE programs to base loans on appraisals from local governments, a change that sharply curtailed the availability of loans to owners of homes with low property values.
The law also required that residential PACE programs be reviewed by the state Division of Finance at least every other year. Previously, PACE programs had to submit annual reports to the state, but ProPublica’s investigation found there was little oversight.
PACE officials and its lenders have said the program’s interest rates tend to be lower than those of some credit cards and of payday lenders, providing much-needed financing for home upgrades, particularly in predominantly Black neighborhoods where traditional lenders typically don’t do much business. Before the new law, Ygrene said, it beefed up its standards by making sure 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 reduced its delinquency rates since the program began making residential loans.
A Ygrene executive told the city of St. Louis’ Clean Energy Development Board on Wednesday that the company wanted a one-year break from making any new loans, starting Aug. 18.
“This is simply due to interest rates and economic conditions that are making the program not viable at this time,” Jim Malle, Ygrene’s director of government affairs, told the board. He also said the company had seen a reduction in new applications for loans “and we believe that is due to the Missouri legislation.”
The board, which only months ago had renewed Ygrene’s contract to act as its administrator for residential loans, said it could have found the company in default of its contract with the city but agreed to suspend the program for at least three months and reevaluate the decision quarterly.
Neal Richardson, executive director of the city’s development agency and a clean energy development board member, said the city would use money from the federal American Rescue Plan Act to help homeowners with energy projects and home repairs.
A representative for the St. Louis County PACE program, which also uses Ygrene, could not be reached for comment.
Ygrene had competed for market share in Missouri with another entity, Missouri Clean Energy District. While Ygrene dominated the market in St. Louis and St. Louis County, MCED operated mostly in St. Charles County, west of St. Louis, as well as across 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 “get out of this business,” said that while Ygrene's departure was good, he worried that other companies may get in the market.
David Pickerill, MCED’s executive director, said his district was still making loans but that business was “down quite a bit, I think, due to the economy and inflation and various factors.” He said it was possible “the people who were the best people to use the PACE program have already done so.”
Ygrene is not getting out of the lending business altogether. The company recently announced it had secured investments from two venture capital firms to expand other types of residential and commercial loans nationally, including those not secured with collateral. Ygrene also offers PACE loans for commercial projects; those loans have not attracted as much attention from regulators because they tend to involve borrowers with more experience and access to capital who aren't as likely as residential borrowers to default.
The company announced last year that it was offering PACE to homeowners in Ohio in a partnership with the Toledo-Lucas County Port Authority. The port authority had run its own successful small-scale PACE program that offered affordable loans in the northwest Ohio city. But port officials said they needed a national company to help offer loans statewide. Ygrene months ago removed any mention of Ohio from its website. Port officials have not responded to questions about the project’s status.