Comments about the Property Assessed Clean Energy program that the Federal Housing Finance Agency asked for came in recently with environmental advocates and local government representatives calling for Fannie Mae and Freddie to find a way to deal with the lien dilemma the program presents so as not to restrict the use of PACE loans.
There is “a lot of controversy around…the PACE program…because that lien took precedence the lender's lien,” noted Joey McDuffee, head of sales and marketing at industry vendor Wipro Gallagher Solutions, in an interview about some of the regulatory issues affecting the mortgage business, including the PACE concern.
To re-cap the PACE saga in a succinct way: the GSEs had discontinued the program, which allows local governments to provide financing to property owners for the purchase of energy-related home-improvement projects, due to concern about the lien issue. But United States District Court for the Northern District of California issued a preliminary injunction that compelled them to put out an advanced notice of rulemaking in adopting guidance concerning mortgages that are or could be affected by PACE. As an appeal of that court move was still pending at the time, FHFA went ahead with the ANPR with the caveat that it could withdraw it if its appeal went through.
The ANPR recently brought in several comments that largely back the use of the PACE program due to its environmental benefits.
But the FHFA has been concerned that lien issue presents a safety and soundness problem for Fannie and Freddie, mortgage holders and potential investors in agency mortgage-backed securities. In line with this, it asked commentators to consider and answer questions about how PACE underwriting standards compare to other providers of home improvement financing and what factors they consider in determining whether to make a loan and whether it can be repaid.
While some letters stress the environmental benefits without directly addressing these questions, some suggest there are cost savings available in line with clean energy that ultimately would have some benefit in terms of borrowers' creditworthiness.
For example, Neal Zislin, an engineering VP at Renu Energy, said in a submitted comment that he could provide an example of how a clean energy investment such as a $20,000-$30,000 solar panel system for a property could improve borrowers' finances over time.
“Allowing for uniform payments over [a] 20-year period, which is within the 25-year warranty extended by solar panel manufacturers, results in an increase in property tax payments of approximately 0.5% for a property market value between $200,000 and $300,000. The premise of the PACE program is that the incremental increase in property tax payments attributable to the PACE program is more than offset by the reduction in electricity charges owed to the utility or third party electricity provider. The property owner benefits economically from the solar system installation and the monthly cash outflow for living expenses is reduced,” he said.
