Comprehensive federal requirements, briefly.

·        PACE = “Credit” under TILA. The prior exclusion for tax assessments is narrowed to involuntary assessments; voluntary PACE assessments are now covered by credit.

·        Mandatory ATR. Administrators and PACE companies “substantially involved” in credit decisions must document a good-faith ATR determination using third-party verification of income, assets, and debts.

·        TRID for PACE. CFPB issued PACE-specific Loan Estimate and Closing Disclosure (with Spanish versions) and clarified PACE’s‑unique qualitative disclosures.

·        Exemptions & thresholds. R‑PACE is not a Qualified Mortgage; it is exempt from periodic statements and the HPML escrow rule, but subject to HPML appraisal (above the annual threshold) and HOEPA high‑cost tests.

Effective date and runway.

The rule takes effect March 1, 2026; 2025 is the build year for policy, systems, vendor/contractor training, and form deployment. Early adoption of PACE-specific TRID forms in 2025 can smooth implementation and reduce legal friction.

California remains the benchmark state regime.

·        AB 1284 (2017): Requires DFPI licensure for PACE administrators; mandates ability‑to‑pay determinations independent of equity; and establishes contractor enrollment/training and reporting controls. DFPI guidance highlights value-based caps (e.g., 15% up to $700,000 and 10% above that) as part of the risk-limiting framework.

·        SB 242 (2017) & AB 2063 (2018):

Add oral confirmation of key terms, strengthen disclosures, and require ability‑to‑pay before any work begins, reinforcing California’s consumer‑protection “floor” that will sit alongside the federal “ceiling.”

·        Wildfire safety eligibility. California recognizes wildfire‑hardening improvements as PACE‑eligible (procedurally aligned with seismic/EV charging), with subsequent legislative work clarifying defensible‑space measures—significant for high-risk geographies.

Underwriting in 2025—signals from the market.
Market best‑practice updates (e.g., TX‑PACE 2025 coalition guidance) emphasize stronger guardrails—higher LTAV caps (to ~35%), refined Savings‑to‑Investment Ratio (excluding financing costs), and limits on capitalized interest/IO periods—informing investor expectations even where not mandated in California R‑PACE.

Implications for stakeholders.

·        PACE Administrators must urgently align California licensure/consumer‑protection controls with federal ATR/TRID—including third-party verification, PACE-specific TRID forms, and potential loan‑originator obligations for contractor‑solicitors.

·        Mortgage Lenders must treat existing PACE payments as property‑tax obligations in their ATR (mortgage underwriting), verify them, and anticipate HPML appraisal interactions on specific files.

·        Investors/Securitizers should expect enhanced reps & warranties around ATR, TRID, high‑cost/HPML, and contractor oversight, with documentable audit trails.

·        Homeowners in high-hazard zones gain access to wildfire‑hardening upgrades (with potential insurance benefits) but face stricter affordability screens and must understand the tax‑bill impact and lien priority.

South Orange County (San Juan Capistrano) lens.

In VHFHSZ pockets of South OC, which are specific high-risk wildfire zones, pairing wildfire hardening + solar under PACE with insurer verification can support coverage retention and potential premium relief. HOA approvals and Spanish-language TRID/oral confirmations are practical considerations; PACE line-items must be modeled in escrowed tax payments, affecting DTI and refi/sale timelines.

Key risks to watch.

·        Legal/Policy challenge risk (e.g., Congressional Review Act or litigation) exists, but planning should proceed toward the 2026 effective date.

·        High‑cost/HPML exposure and contractor origination compliance are near-term audit and enforcement hotspots.

Action plan (2025–early 2026).

·       Q4‑2025: Finalize ATR/TRID policies, vendor contracts, Spanish forms, and contractor loan‑originator training; pilot PACE TRID packages.

·       Q1‑2026: Complete file‑audit dry runs against eight ATR factors; lock appraisal/HPML screens; update capital‑markets disclosures.

·       By Mar 1, 2026: Go‑live with PACE LE/CD, verification pipelines, and escalations; memorialize governance approvals and recordkeeping protocols.