By Carolyn Berndt
The recently-introduced Property Assessed Clean Energy (PACE) Assessment Protection Act (H.R. 4285) would allow state and local governments to develop and implement residential PACE programs to finance the purchase and installation of energy efficiency and renewable energy retrofits.
Sponsored by Reps. Mike Thompson (D-CA), Pete King (R-NY) and Sean Patrick Maloney (D-NY), the bill would direct the Federal Housing Finance Agency (FHFA) to rescind its 2010 policy guidance that objected to local governments holding the first lien on PACE homes to ensure repayment of public funds if the home goes into foreclosure, calling this a significant risk to the mortgage financier. This policy guidance effectively halted residential PACE programs across the country.
NLC applauds the introduction of H.R. 4285 and continues to support local authority to implement residential PACE programs, contending that participation in the PACE program does not affect the safety and soundness of mortgages.
A recent study by the Institute for Market Transformation found that default risks are on average 32 percent lower in energy efficient homes, controlling for other loan determinants. The authors conclude that lenders may want to promote underwriting flexibility for mortgages on energy efficient homes or encourage an energy audit or rating as part of the mortgage underwriting process.
To address the mortgage industry’s concerns and reduce their perceived financial risk, the bill establishes minimum underwriting standards to ensure that homeowners are able to afford the PACE assessments.
“With PACE, homeowners and businesses’ utility costs are lowered, people are put to work, and our nation gets the benefit of reduced energy use, increased energy independence and a cleaner environment – all at no cost to the taxpayers. Our bill will allow every community in America to take advantage of this great program,” said Thompson.
PACE programs allow local governments to provide funds to participating homeowners or businesses to install energy efficiency upgrades, which are paid back over time in the form of a special assessment. Payments are typically secured by a lien on the property that gives local governments priority of repayment if the home goes into foreclosure.
Despite an effective ban on residential PACE programs, states continue to enact laws enabling commercial PACE programs, and many communities across the country have implemented such programs.
Thirty one states plus the District of Columbia have passed legislation enabling cities and counties to pursue PACE programs.
When implemented in a community, the PACE program removes many of the barriers of energy efficiency and renewable energy retrofits that otherwise exist for homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings.