Fannie and Freddie to clean-energy program: Drop dead
Grist has been covering Fannie Mae and Freddie Mac’s attack on Property Assessed Clean Energy (PACE), a promising tool that helps homeowners finance green improvements to their properties. Here’s the latest:
On Tuesday, Fannie Mae and Freddie Mac ended their radio silence nine weeks after sending cryptic letters warning lenders against permitting the use of Property Assessed Clean Energy (PACE) — but it wasn’t the follow-up PACE advocates were hoping for.
The government-chartered mortgage giants are sticking with their puzzling opposition to the finance tool, effectively killing PACE programs around the country, at least for the time being. A letter from the Federal Housing Finance Agency [PDF], the regulator and spokes-agency for Fannie and Freddie, claims PACE programs “present significant safety and soundness concerns that must be addressed by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.”
FHFA’s letter amounts to a middle finger to PACE, which has drawn excitement from clean-energy advocates, home-improvement contractors, and homeowners who want to use the system to pay for projects like rooftop solar arrays and retrofits that cut energy waste.
Bottom line: It’s now up to Congress to break through the impasse, as PACE creator Cisco DeVries suggested last Friday. Which means don’t hold your breath for a quick resolution. With energy and climate legislation, offshore-drilling reform, finance reform, unemployment benefits, and untold other important matters all awaiting action from our action-averse Senate, it’s a major bummer that PACE now has to wait in line. That said, Long Island Rep. Steve Israel (D) is already working on legislation to reanimate PACE.
New York Times (and Grist) contributor Todd Woody explains the basics of FHFA’s new guidelines. Writes Woody:
When a municipality pays for energy efficiency upgrades through the program, a lien is placed on the home. The liens, like other property tax assessments, take priority over the mortgage if the homeowner defaults.
But the housing agency on Tuesday characterized PACE liens as different from other special assessments that cities routinely use to finance sewers, sidewalks, and other civic improvements.
Towns and counties use some 37,000 tax assessment districts to pay for public improvements from schools to mosquito-abatement programs. Yet Fannie, Freddie, and FHFA oppose only PACE assessments.
Here’s the most surprising part of FHFA’s letter:
First liens established by PACE loans are unlike routine tax assessments and pose unusual and difficult risk management challenges for lenders, servicers, and mortgage securities investors. The size and duration of PACE loans exceed typical local tax programs and do not have the traditional community benefits associated with taxing initiatives. [emphasis mine]
The agency is arguing that reducing greenhouse-gas emissions, saving homeowners money on utility bills, and creating local jobs working on homes are not “traditional community benefits.” It’s making another argument too: That it should get to decide what projects have local-community benefits.
“It is a very, very troubling precedent to have mortgage regulators assert their ability to decide what taxes and assessments are acceptable and what are not,” DeVries said on Tuesday.
It’s tantamount, he said, to FHFA telling a local government, “‘A sewer system is not really as old as you say it is,’ or, ‘You don’t really need to put those utilities underground,’ or, in California, ‘You don’t really need to do seismic strengthening on those buildings.’ This is a pretty standard tool used for a lot of things.”
Most frustrating to DeVries is that the mortgage corporations don’t seem interested in finding a resolution.
“We have an opportunity to test out a model in key communities around the country over the next two years, with tremendous protections in place,” he said. “It could show that it works, that the mortgage lender’s position is improved, that the property owner’s ability to pay is improved, and that property values go up. Instead of figuring out a way to let this go forward under a clear set of guidelines and rules so we can learn about it — as we had all expected them to do — to stop it now is outrageous.”
“The useful thing is that I’m not the only who thinks this way. There are a lot of folks who are working on this. So we’ll continue on.”