Just as the economy is poised to slump into the second dip in the W, along comes a federal housing agency to give our economy a little butt-kick into the abyss by thwarting an attractive funding mechanism for home energy retrofits and the jobs that come with them. The decision deprives twenty-two states that have passed laws in support of property assessed clean energy financing (PACE).
It's a little personal here in Boulder because our county was the first in the nation to fully implement PACE in our program called the Climate Smart Loan Program. And our community has seen $13 million in the past two years, just for the residential program, flow through the economy with this financial instrument that helps a community burn less money by burning less fossil fuels.
However the Federal Housing Finance Agency (FHFA) which regulates Fannie Mae and Freddie Mac (which own or guarantee most of our nation's home mortgages) has determined that PACE programs "present significant safety and soundness concerns."
When Fannie and Freddie issued ambiguous warnings about PACE weeks ago, Country Commissioner Will Toor said the mortgage moguls would resolve this in support of PACE "because their position makes so little sense."
The housing giants' objection has been stubbornly focused on the senior status of the lien, meaning in the event of a home default the local land tax authority gets paid prior to the mortgage lender. In reality, in a default, only the delinquent amount of tax would be senior, being say, a thousand dollars, rather than the whole retrofit assessment of, say, $15,000. The remaining debt stays with the property.
"The FHFA memo is the classic solution looking for a problem" says Alice Madden of Governor Ritter's office. "One of the reasons PACE bonds get such high ratings is that the debt stay with the property; these are not personal loans and lenders are simply not at risk."
At the behest of the Department of Energy and its intent to leverage PACE upgrades with stimulus funding, PACE programs have developed best practices such as aiming for energy savings to exceed the amount of assessment, a retrofit cap which can be no more than 10 per cent of property value, only delinquent amounts of the assessment get paid in foreclosure, and positive equity requirement amongst borrowers.
These standards sure beat subprime mortgages that Fannie and Freddie gladly gobbled up on houses that spill energy in every direction. But the FHFA alleges, without analysis, that PACE financing presents only downsides. Though the agency was lobbied with generous explanation (available through PACENOW.org) showing that new standards nearly assure cash benefits for borrower and lender, the FHFA has determined as if only downside risks are noteworthy.
Most likely, PACE projects would bolster lenders' profit margins by easing borrowers' monthly expenses and risk of default. And it's not just the lender, borrower, retrofitter and solar manufacturer shall benefit from PACE. Over in wobbly Wall Street, sellers of municipal bonds also want in to this highly attractive bond market made safe by the senior lien status. Barclay's Capital has asserted that "there would be little to no meaningful bond buyer interest" in PACE liens without the senior status.
Lenders have routinely tolerated senior liens for property-assessed additions such as sidewalks, sewers and schools. But reducing a community's exposure to coal and natural gas prices? FHFA has deemed this to "not have the traditional community benefits associated with taxing initiatives".
They better be careful. These lenders got at least $160 billion in bailout for their excellence in "safety and soundness" during the sub prime disaster that laid our nation low. And now as unelected bureaucrats they try to tell us, their taxpayer benefactors, what is what in community benefits?
Toor minces no words: "It's an outrageous assault on state and local authorities."
This federal versus local drama makes a taxpayer get a very long memory. Going back to 2003 let's recall that FHFA's cohort, the Office of Comptroller of the Currency, preempted all 50 states' laws against predatory lending and sued to stop local investigations of abusive practices, according to Eliot Spitzer.
Do these banking giants works for the American people? Or do they suffer the cloistered groupthink that infected BP and Mineral Management Services?
Two states already are suing the lenders for obstructing states' ability to finance efficiency and clean energy.
This is a big political story. Prior to their determination FHFA received a barrage of appeals in favor of PACE from governors, senators, congressmen and advocates. From Colorado, Senators Mark Udall and Michael Bennet, Representatives Jared Polis, Betsey Markey and John Salazar as well as Governor Ritter all wrote in favor of PACE. Watch for more litigation and legislation.