FAN and FRED Shoot Down PACE

There is something ironic about the actions of Fannie Mae and Freddie Mac objecting to the property assessed clean energy program (PACE) because it may give the government priority in a bankruptcy or foreclosure proceeding for repayment of these energy efficiency loans ahead of the first mortgage holder. [1]

Why is this ironic?  Because Fan and FRED are materially responsible for the home loan meltdown problem and are entirely controlled by the same Federal government they now are challenging.  The Obama Administration committed $150 million in stimulus money to support homeowner installation of solar and other clean energy solutions. [2]

I’m from the Government; I’m here to help you!

PACE is the kind of local self help program we should applaud.  It uses the same redevelopment authority local government has used for years to make improvements that enhance the value of the property and strengthen neighborhoods.  But the action of FAN and Fred now put all those previously issued PACE loans at risk and, if it stands, will require homeowners to pay off the PACE loans before they can refinance the mortgage or sell the property rather than allow the assessment to pass forward to new owners as do traditional utility or other improvement district assessments.[3]

While the Federal government has endorsed and encouraged the PACE program, it actually got started in California in Berkeley as a way of accelerating the use of solar energy.  The strategy used the redevelopment authority of the city to create an “assessment district” that allowed city agencies to loan money to residents to install solar panels and repay those loans through a property tax assessment much like a water, sewer or other utility improvement.

The purpose of PACE was to overcome the barrier of large upfront capital costs.[4] The program caught on and in 2008, California adopted AB 811 making the program statewide.  The loans were seen a very low risk since, as tax assessments, they were senior to the mortgage.  This earned them a relatively low interest rate thus benefiting both the borrower and the government lender in accelerating the adoption of clean energy solutions.  To date 23 states also have adopted PACE program strategies to accelerate clean energy adoption.

The other irony is that after spending billions in stimulus money to get the economy rolling again, the Obama Administration allows two of its worst performing agencies to singlehandedly derail one of the most cost effective, efficient, easy to use and cheap programs for growing the clean energy economy.