Obama administration officials have failed to resolve a dispute with Fannie Mae and Freddie Mac that has shut down Property Assessed Clean Energy (PACE), according to an email obtained by Grist. The impasse will likely kill the promising clean-energy financing tool until Congress passes legislation addressing it, according to Cisco DeVries, who first created the PACE system three years ago.

Department of Energy officials have been unable to convince the Federal Housing Finance Agency, which regulates Fannie and Freddie, to end the corporations’ prohibition on using PACE, DeVries told PACE advocates in an email Friday evening. 

PACE allows homeowners to finance solar panels or energy-savings retrofits through an addition to their property tax bill, paid back over 15 to 20 years; the programs are funded through local government bonds.  Fannie and Freddie have expressed concern that if homeowners go into default, PACE loans would have to be repaid before mortgages.

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“Unfortunately, the discussions between the Obama Administration and the FHFA [Federal Housing Finance Agency] have not been successful,” DeVries wrote. “DOE and the White House have informed us that the senior lien — regardless of how structured, accelerated, or insured — is not acceptable to the regulators.  New guidance from Fannie and Freddie to this effect is due out soon.” 

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The PACE financing tool had been spreading quickly throughout the nation until this spring, with 22 states having passed laws allowing such programs. The Obama administration backed the idea with $100 million in stimulus-act funding. But May 5 letters from Fannie and Freddie threw the few existing PACE programs into confusion, undermining an administration priority. (Grist reported the backstory last week.)

“DOE has begun notifying [stimulus-act] grant recipients that they probably want to start moving their grant funds away from residential PACE,” wrote DeVries, now president of Renewable Funding, a company that helps cities set up and run PACE programs.

“While Renewable Funding and others are able to offer other types of energy loan products, this is obviously quite disappointing.  We are actively pursuing a legislative strategy to have Congress overturn this position.  Legislation will be introduced shortly to that effect.”

Waiting on Congress to address the problem is — to put it mildly — not ideal, because the process could take months, if it’s successful at all. Eleven senators and more than 40 House members have spoken up in support of PACE; Reps. Henry Waxman (D-Calif.) and Barney Frank (D-Mass.) sent new letters on Friday to Obama Cabinet officials and the head of FHFA, pushing for the problem to be resolved. But that doesn’t mean they’ll be able to speed up the legislative gears.

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“We also continue to engage with the regulators in the hope that cooler heads will prevail,” DeVries continued. “Sorry to be the bearer of bad news on a lovely holiday weekend.”