PACE Clean Energy Program Dealt Setback

August 16, 2010

Last month, the Property Assessed Clean Energy (PACE) program was dealt a setback when the Federal Housing Finance Agency (FHFA) issued a statement effectively halting mortgage financing for homes participating in the PACE program.

In its statement, FHFA objected to local governments holding the first lien on PACE homes to ensure repayment of public funds if the home goes into foreclosure, calling it a significant risk to the mortgage financier. 

The decision comes as a surprise to the 23 states and many cities that currently have PACE programs, because federal agencies, including the U.S. Department of Housing and Urban Development and the U.S. Department of Energy, as well as Vice President Joseph Biden, have been promoting PACE programs as a key component of economic recovery. 

Under the PACE program, local governments provide funds to participating homeowners to install energy efficiency upgrades, which are paid back over time in the form of a special assessment on the property tax. Payments are typically secured by a lien on the property that gives local governments priority of repayment if the home goes into foreclosure. 

When implemented in a community, the PACE program removes many of the barriers of energy efficiency and renewable energy retrofits that otherwise exist for residential 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. 

The U.S Conference of Mayors (USCM) and the National Association of Counties (NACo) joined NLC in a letter to FHFA criticizing the agency's decision to halt mortgage financing for homes participating in PACE programs. 

The joint letter argues that FHFA's decision is "out of step with our nation's economic recovery agenda and disregards the traditional authority of local governments to utilize the tax code in the best interest of its citizens." NLC, NACo, USCM and others are working together with Congress to implement a solution that will permit local PACE programs to continue. 

FHFA oversees the operation of mortgage finance companies Fannie Mae and Freddie Mac who, although under federal conservatorship, together still finance approximately 90 percent of U.S. home mortgage lending. 

The FHFA statement can be found at www.fhfa.gov