There is opportunity available right now to add vitality and long-lasting productivity to our economy by fostering investments in energy efficiency and renewable energy by homeowners. However, a key regulator for the mortgage industry bailed-out by the American people has prevented development of this prospect.
SACE and our allies are calling on the Federal Housing Finance Agency (FHFA) to release its freeze on residential Property Assessed Clean Energy programs. PACE programs provide voluntary financing for investments in energy efficiency and renewable energy by property owners, paid for by special assessments on a property tax bill. A broad community has joined to push FHFA to fire up PACE: local governments, trade associations, energy companies, and non-governmental organizations representing millions of Americans.
Rather than impeding PACE, FHFA should be supporting this national movement as an opportunity to strengthen our economy.
Quite simply, FHFA has not supported its position that PACE programs increase financial risks to home loan lenders. FHFA policy affects mortgages insured by Fannie Mae and Freddie Mac, which dominate the residential market. The proposed rules effectively block local government PACE programs (frozen by FHFA since July 2010). The evidence shows that:
- PACE does not materially increase financial risk.
- The proposed Rule is not supported by evidence in the record.
- There is ample support for the adoption of rules that support PACE in a local jurisdiction that complies with rigorous underwriting standards and program guidelines.
There is a path for PACE that satisfies FHFA’s obligations to protect the safety and soundness of its mortgage insurance programs. In fact, PACE should help increase home values, reduce defaults, benefit the environment, and respect the well-established taxing and assessment rights of local governments.
PACE Will Increase the Value of Homes and Fannie Mae’s and Freddie Mac’s Portfolios
- Energy efficiency and renewable energy improvements increase home values.
- Energy prices are destined to go up; data does not support FHFA’s conclusion that the impact of PACE on home values is uncertain.
- Residential appraisal standards have evolved, and will enable the value of PACE-financed improvements to be realized.
- The requirement that savings exceed assessment costs mitigates FHFA’s perceived risk.
PACE is Likely to Increase Homeowners’ Cash Flow and Decrease the Risk of Mortgage Default
A recent report shows that “energy efficiency measures typically enhance a borrower’s ability to pay since the monthly energy bill reductions typically exceed the additional monthly payments associated with the energy efficiency improvements.”
PACE is Favored by Businesses
Cost-conscious businesses are moving forward with PACE since they are unaffected by FHFA policy. For example, Florida cities are forging ahead with PACE for commercial properties. Yet residential programs are on hold in most places, including in Florida, pending resolution of this FHFA issue—either by the agency or by prospective congressional action.
The letter we’ve signed with many PACE friends concludes, “It would be arbitrary and capricious for FHFA to close to the door to residential PACE by issuing the Proposed Rule when a workable solution is either available now or can be resolved in a relatively short period of time.” With our co-signers, we recommend the FHFA adopt an alternative, modified rule that provides for local government compliance with the rigorous underwriting standards and program guidelines. This course “enables FHFA to enhance the value of the Enterprises’ portfolio while respecting the rights of local governments to protect the public health and safety and allowing this extremely effective engine of job creation to move forward.”
Further information about PACE is available on the web at: www.votesolar.org/protecting-pace or www.pacenow.org. Another brief PACE overview is offered by the Alliance to Save Energy.