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Solar News

PACE Program Challenges Grow


This solar news story is an update to an article we wrote last month about the major obstacle Fannie Mae and Freddie Mac have put in the way of PACE programs. A support to homeowners, PACE (Property Assessed Clean Energy) is a finance program that allows homeowners to install solar panels and put the cost of the installations on their property tax bills and pay the assessment over a long-term period. Despite being promising in an economic and environmental sense, Fannie Mae and Freddie Mac issued a letter in May, suggesting that property owners with mortgages from these two mortgage lenders would be forbidden from participating in the PACE programs.

"The letters have had a devastating impact on PACE programs in California, placing at risk hundreds of millions of dollars of federal stimulus funding, hundreds of millions of dollars of state, local and private funding, and impacting California's efforts to promote green jobs and greenhouse gas emissions reductions," Ken Alex, a senior assistant attorney general in California, wrote in a letter to the housing agency, according to a NYTimes article.

Fannie Mae and Freddie Mac are worried that taxpayers will end up as losers if a homeowner fails to pay on a mortgage on a home that uses financing such as PACE. In the letters sent to mortgage lenders, the two lending conglomerates stated that energy-efficiency claims could not take priority over a mortgage. "The purpose of this industry letter is to remind seller/services that an energy-related lien may not be senior to any mortgage delivered to Freddie Mac," wrote Patricia J. McClung, a Freddie Mac executive.

Local and state officials argue that the energy liens are no different than other types of special property taxes, such as those used to finance underground utilities or sidewalks. Neither Fannie Mae nor Freddie Mac offered any guidance to mortgage lenders regarding how to handle properties that have the energy liens.

Rod Dole, Sonoma County's treasurer and tax collector, reveals, "We are anticipating a slowdown in interest due to the uncertainty." Sonoma resident Katrina Wilhelm, who enrolled in the program to finance the installation of a solar array on her home, said she was unaware there was even an issue with the PACE programs.

"That's unfortunate because part of the draw was that the loan goes with the property to the next owner so it can be a win all around, for me and the future buyers."

As if Fannie and Freddie hadn't provided enough trouble, PACE has hit another big roadblock, alarming residents and state officials. Last month, a California judge held up a distribution of $30 million intended to get PACE up and running. The legal disagreement has delayed PACE programs in 23 counties across the Golden State. Ironic, considering California has been among the leaders in PACE financing, having planned two-thirds of the state to have working programs by the year's end.

In the suit, the Western Riverside Council of Governments, which represents 16 southern California cities, has made claims to $20 of the $30 million in PACE funding. Because the group wants to make it easier for homeowners to install panels, it rejects a state requirement typical of PACE programs that homes reduce energy use by 10 percent or more with energy retrofits before considering solar; hence, the group's application was rejected.

The California Energy Commission awarded the money to San Francisco, Los Angeles, and the counties of Sonoma, Sacramento and Humboldt. The Western Riverside Council of Governments protested the decision, later filing suit. The dispute has created another layer of uncertainty in PACE's future.

"It really dramatically impacts our program," says Johanna Partin, director of climate protection initiatives for San Francisco, in a Greentech Media article.

With Fannie Mae and Freddie Mac opposing PACE programs and the recent legal dispute in California, PACE has been in a state of limbo. Despite its innovative and positive goals, the programs have barely achieved liftoff. Many are wondering what else is in store for PACE's future.