Solar-power financing could spell trouble

The owner of a North County solar-power company says he sees the next housing bubble bursting on the horizon. While it’s the hand that feeds much of his business now, he says it’s the same trick that financial institutions used almost a decade ago, which caused our recent recession and housing-market crisis.

“Homeowners will start losing their homes again with easy-to-qualify loans,” said the business owner, who asked not to be identified.

The HERO program — Home Energy Renovation Opportunity — has been touted statewide with direct-mail pieces and on radio and TV. Now approved in 48 California counties, the program is expanding to Missouri and Florida, with the state and federal governments' blessings.

A homeowner can qualify for upgrades in heating, air conditioning, energy-saving windows, roofs, drip irrigation systems, artificial turf, drought-tolerant landscaping, and solar installations — 50 types of projects.

“I know people that have received a whole kitchen and bathroom remodel in the name of water conservation,” said the business owner.

Homeowners with a little equity can get 100 percent financing with no money down, quick approvals, and no credit check. (I received a direct-mail piece offering me up to $49,500 in home improvements.) The program provides HERO-approved contractors to perform the services.

The problem, says the business owner, is the loans are repayable through one’s property taxes, for up to 20 years.

“Now, once again, people will find themselves with payments they can’t afford, this time with property taxes rather than last decade’s [home equity line of credit] stated income/signature second mortgages. When they can’t pay, they’ll start losing their homes."

Dennis Smith of Encinitas’ RE-MAX by the Sea real estate agency sees other problems with HERO. Because it’s on a property’s tax, a HERO loan will take first position in the debtor line-up, should a lien be imposed on the property for back-taxes owed to the county.

“Lenders probably won’t refinance if they could end up in second position,” said Smith. “It will also discourage the sale of the house, as a new buyer may not want to assume that additional debt.”

Smith says someone considering a HERO loan should determine if they can truly afford an increase in property-tax payments. (Based on the offering received in the mail, my property taxes could increase well over $2000 annually.)

The HERO program was allowed to be created under the federally approved Property Accessed Clean Energy Act. Governor Jerry Brown awarded his Environmental and Economic Leadership Award to HERO. According to a news release, since 2011, HERO has created 14,900 jobs, provided a total of $1.75 billon in home-efficiency upgrades, saved 11.2 billion kilowatts of electricity and 5.61 billions gallons of water.

“This is a big collusion between the construction industry, home-improvement manufacturers, and financial institutions. They schemed to get the support of the government to make it look like it's okay,” said the solar business owner.

“If you can’t afford to pay up front for home improvements, you shouldn’t be doing them,” he said. “If I wasn’t a HERO-approved solar company, it would hurt my business. But I hate to see people lose their homes over something I was involved with."

UPDATE 11/16, 7:30 a.m.

Greg Frost, a PR representative for Renovate America, objects to the North County solar-power company owner's opinion that the HERO program could result in a new housing crisis.

"[PACE] underwriting criteria are designed to avoid the kinds of disaster scenario [the writer] presents," writes Frost. "There have been ZERO foreclosures initiated by PACE providers across more than 100,000 assessments to date. Across the more than 80,000 California homes that have used HERO financing, there have been 28 foreclosures initiated by primary mortgage holder, not by HERO. The California Loan Loss Reserve Fund — set up for the PACE industry — has never been tapped."