PACE programs come under fire from federal officials
Property Assessed Clean Energy, or PACE, programs are the subject of a battle between federal housing officials and local governments.
The Federal Housing Finance Agency has effectively barred the lenders it regulates from lending to those who have taken out PACE loans, which help homeowners pay for energy-efficiency upgrades or renewable-power installations.
The FHFA’s problem with PACE stems from the loans’ standing in the event of a mortgage default: Because PACE loans are paid back by way of property tax assessments, they are treated as tax payments – and would be paid off before a mortgage if a home loan borrower defaults.
In a July 14 statement, FHFA acting director Ed DeMarco said "Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections."
Yet the agency’s focus may be on its subsidiaries’ battered finances, rather than the risk posed to borrowers by PACE programs. Fannie Mae and Freddie Mac, the government-sponsored mortgage financing companies over which the FHFA assumed control in September 2008, have accepted nearly $150 billion from the Treasury and could cost taxpayers as much as $380 billion, according to a Congressional Budget Office analysis.
Thus, the FHFA’s primary concern may be mitigating future losses. Yet its refusal to support the issuance of PACE loans is irking state officials and homeowners alike.
California’s attorney general filed suit against the agency last Wednesday, and the government of Sonoma County, California is still accepting PACE loan applications – even though the agency has urged states and cities to pause their PACE programs until new underwriting standards can be developed.
The battle over PACE may be just beginning.
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