PACE Financing Makes Progress but Still Encounters Opposition
The Obama Administration, mostly through the U.S. Department of Energy (DoE), has consistently pushed alternative energy and energy efficiency during the past seven-plus years. Another way in which it has backed these efforts is championing Property Assisted Clean Energy (PACE) loans. The administration recently took a significant step toward making the PACE approach more viable.
PACE loans provide funding for energy efficiency-related and energy saving upgrades. The loan is repaid through an assessment on the tax bill. The loan travels with the property and becomes the responsibility of the buyer if the property is sold.
State and local laws must be in place for PACE financing to be offered. The approach is equally attractive to residential users (and developers) and the commercial and industrial segments.
Earlier this month, the administration announced a significant change to PACE loans. Bloomberg reported that until this point PACE loans could not be used in federal mortgage programs because they are repaid first in the case of defaults. This means, the story said, that in some foreclosures – when the value of the home is less than the PACE loan – taxpayers would be left with nothing.
The change, the story said, is that the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) now will accept PACE loans. The story says that in a foreclosure the portion of the PACE loan in arrears will be paid. The rest of the loan will be assumed by the new owner if the property is sold.
PACE loans are by no means universally popular. The Scotsman Guide – which covers the mortgage industry – posted a story yesterday highlighting opposition from the Mortgage Bankers Association. The MBA this month wrote a letter to the Consumer Financial Protection Bureau calling PACE loans costlier and less transparent than other options:
The trade group also argued that the agency loan programs would be put at greater risk. HUD and VA have adopted several measures to lessen the risk. According to the MBA and the National Association of Realtors, however, the guidelines are weaker than standards adopted by the Federal Housing Finance Agency (FHFA). FHFA has previously advised lenders that Fannie Mae and Freddie Mac would not purchase loans with PACE assessments that hold a first-lien position.
The Department of Housing and Urban Development (HUD) oversees the FHA.
PACE loans are not fully accepted even within the government despite the administration moves. The Bloomberg story reports that the Federal Housing Finance Agency (FHFA), which oversees Freddie Mae and Freddie Mac, said it won’t allow PACE financing. The story said that FHFA chairman Mel Watt released a statement that said that PACE loans increase risks to taxpayers.
How PACE evolves clearly is dependent on the presidential election. It is not unreasonable to assume that a drastic change is more likely if Donald Trump is elected. In the interim, however, it is important to track vital details such as which parties are satisfied first in case of a default.
PACE is setting its sight more clearly on the commercial sector. For instance, yesterday CleanFund, a PACE financier, said that it has partnered with Soligent. The deal will enable Soligent’s dealers and installers to offer PACE financing for commercial and industrial, non-profit and multifamily residential buildings, according to pv magazine.
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