FHFA Initiates PACE Rulemaking, Local Governments Urged to Take Action

by Carolyn Berndt

Last month, the Federal Housing Finance Agency (FHFA), responding to a court order, issued an Advance Notice of Proposed Rulemaking on adopting guidance concerning mortgages that are or could be affected by Property Assessed Clean Energy (PACE) programs.

Last August, the U.S. District Court for the Northern District of California found that FHFA violated the Administrative Procedures Act (APA) when it issued its July 6, 2010, statement directing Fannie Mae, Freddie Mac and the Federal Home Loan Banks to refrain from purchasing residential mortgages with PACE assessments. The statement objected to local governments holding the first lien on PACE homes, calling it a significant risk to the mortgage financier.

Specifically, the court issued a preliminary injunction and ordered FHFA "to proceed with the notice and comment process" in accordance with the APA. As such, FHFA is seeking comment on whether its PACE restrictions should be maintained, changed or eliminated.

Comments will be accepted through March 26. NLC supports local authority to implement PACE programs and will submit comments prior to the deadline. NLC encourages cities and towns in the 27 states that allow PACE programs to also submit comments to FHFA and to share them with NLC.

FHFA has appealed the California District Court's order to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit has stayed, pending the outcome of FHFA's appeal, the portion of the California District Court's Order requiring publication of a final rule.

As the rulemaking and court case moves forward, NLC is supporting congressional efforts to resolve the PACE issue. The PACE Assessment Protection Act of 2011 (H.R. 2599), sponsored by Reps. Nan Hayworth (R-N.Y.), Dan Lungren (R-Calif.) and Mike Thompson (D-Calif.) will restore the ability of local governments to offer PACE programs to finance the installation of renewable energy and energy efficiency improvements.

The bill incorporates directly into the legislation best practices and guidelines from the U.S. Department of Energy to ensure safety for homeowners, private capital providers and existing mortgage lenders.

"My colleagues and I are fighting for a common sense program that would both increase the value of homes involved and help create jobs in our region. The time is now, more than ever, to pass legislation that will accomplish this goal," said Lungren.

The PACE program allows local governments to provide funds to participating homeowners 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. Twenty-seven states plus the District of Columbia have already 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 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.

"It's not just a win-win situation, but win-win-win: homeowners get the benefit of lower utility bills; workers in the stagnating construction industry get jobs; and the nation gets the benefit of increased energy efficiency and reduced energy costs," said the bill sponsors in a joint statement introducing the bill.

The upcoming NLC Congressional City Conference will feature a workshop on energy investments for economic growth, including an update on the PACE rulemaking and legislative status.

Details: The FHFA Advanced Notice of Proposed Rulemaking, including instructions for submitting comments, is available at www.federalregister.gov by searching for regulatory information number (RIN) 2590-AA53.

For additional resources, visit the NLC Regulatory Advocacy webpage, energy issue area: www.nlc.org/influence-federal-policy/advocacy/regulatory-advocacy or the PACENow coalition website, www.pacenow.org.