Email

Print

July 8, 2010

Federal watchdog demands freeze on PACE programs

The regulatory watchdog for the secondary mortgage market has called on state and local governments to scrap Property Assessed Clean Energy (PACE) programs.

The Federal Housing Finance Agency said on Tuesday that the programs allowing homes and businesses to finance renewable energy equipment through the property tax system are a “significant risk” to lenders.

After reviewing energy retrofit financing schemes for more than a year, the Agency issued a damning verdict, stating that PACE programs “pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors”.

It expressed concerns about the long-term nature of PACE loans and said they could affect mortgage valuations.

While the state of California has suggested its PACE programs could bring in $1 billion of investment into renewable energy infrastructure, creating more than 20,000 jobs, the FHFA said PACE programs “do not have the traditional community benefits associated with taxing initiatives”.

The Agency said PACE programs are “not essential for successful programs to spur energy conservation”, and also expressed doubt on whether home improvements “actually produce meaningful reductions in energy consumption”.

It called on authorities that have already set up such programs to suspend them until its concerns were addressed.

The FHFA oversees Fannie Mae, Freddie Mac and the Federal Home Loan Banks, which have been instructed this week to tighten their procedures with regard to PACE programs.

“Bureaucratic breakdown”

California’s Governor Arnold Schwarzenegger said he was “deeply disappointed” by the Federal Housing Finance Agency’s verdict on PACE programs.

The FHFA’s bureaucratic breakdown threatens one of California’s most promising new engines of job creation” – California Governor Arnold Schwarzenegger

He accused the Agency of putting $50 million of Recovery Act funds and $400 million of match funding at risk in his state, and threatening thousands of jobs by sending the message to local governments and businesses that “energy independence is not a priority”.

Governor Schwarzenegger said: “The FHFA’s bureaucratic breakdown threatens one of California’s most promising new engines of job creation in this struggling economy.”

The California Governor said PACE “is not a loan”, but based on traditional tax assessments, and that it was designed with “stringent operating rules” to protect homeowners and lenders.

He added: “PACE has clear benefits to the community and the public at large. Energy savings of 40 percent or more are possible, and, as California has demonstrated, reducing energy consumption leads to real savings for all energy consumers and clear benefits to our environment and energy security.”