In early July, the Federal Housing Finance Agency (FHFA) issued a warning against the use of Property Assessed Clean Energy (PACE) loans — which allow homeowners to finance energy efficiency and renewable energy retrofits through loans that are repaid with a city or county property tax assessment — and set new rules for federal mortgage lending giants Fannie Mae and Freddie Mac on handling PACE-affected mortgages. In response, some local governments have suspended their PACE programs, but supporters, such as the Boston-based ICLEI-Local Governments for Sustainability (ICLEI), are rallying to save the green energy funding method.

In its July 6 statement, FHFA points out that many PACE loans establish a priority lien over existing mortgages, which could pose a risk for lenders and affect the valuation of the mortgage on secondary markets. The FHFA also raised concerns over a possible lack of consumer protections in the PACE loans, such as set standards for proving the value of the energy upgrades purchased with the loans.

More than 600 people have participated in Boulder County, Colo.'s ClimateSmart program, which was suspended after FHFA made its announcement, says Boulder County Commissioner Ben Pearlman. “There have been a few scattered issues where individual mortgage brokers had some issues with it, but most of those we've been able to work through,” he says.

ICLEI has expressed support for proposed federal legislation that would protect PACE, held webinars in support of the program, and endorsed a lawsuit filed by Sonoma County, Calif., as a challenge against FHFA's position. “Local assessment tools, such as PACE-enabling programs [spur] energy savings and much-needed job creation during a time of economic instability,” ICLEI Executive Director Martin Chavez said in a statement.

New marching orders

New rules for Fannie Mae and Freddie Mac when handling PACE-affected mortgages include:

  • 1. Waive Uniform Security Instrument prohibitions against senior liens for homeowners with PACE or PACE-like loans.

  • 2. Take protective actions, such as adjusting loan-to-value ratios to reflect the maximum permissible PACE loan amount available to borrowers in PACE jurisdictions.

  • 3. Review their collateral policies to assure that pledged collateral is not adversely affected by energy retrofit programs that include first liens.

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