Friday, March 23, 2012

The PACE Lawsuit is maturing

A few years ago California and 37 other states filed a lawsuit against the US Federal Government when FHMA (Fanny May) and FRMC (Freddy Mac) convinced the Federal Housing Finance Agency (FHFA) to quash Property Assessed Clean Energy (PACE) programs. Apparently a federal judge saw the light, and ruled that FHFA must do 'rulemaking' processes before crushing PACE programs. Now the Vote Solar Initiative is spearheading a letter writing campaign to help inform FHMA of the cost of their mistake.

By derailing PACE in the USA, we have lost the lead in Green Industries to other nations like China and Germany, and we have failed to create the new jobs and train the new Green workforce necessary to compete in the renewable energy economy. Please add your opinion about the future of PACE programs at the local level, click here for more.

Below is my personal letter to FHFA : Please Email:
Mr. Alfred Pollard
General Counsel
Federal Housing Finance Agency
400 7th St., N.W.
Washington, DC 20024

RE: RIN 2590-AA53 Mortgage Assets Affected by PACE Programs; Comments on Advanced Notice of Proposed Rulemaking and EIS Scoping Comments

Dear Mr. Pollard:

When I first learned of Property Assessed Clean Energy, I saw the genius behind the concept. Paying up front for expensive energy remodeling and renewable energy generation systems on every building is not economically feasible for most property owners, and by providing lenders with security by placing a lean against the property gives each property owner the liberty to become their own energy utility. In addition, by removing themselves from the carbon-fuel and nuclear energy consumers group, they save the environment one building at a time. Finally, PACE programs pay for this new energy infrastructure over the life of the buildings and equipment, allowing the cost of the energy to be transfered to each new owner or occupant, without unduly limiting the current owner from selling their property if necessary.

When I found out that FHMA and FRMC had put the kibosh on PACE programs by filing a federal lawsuit, it seemed counter productive, but I was willing to hear their reasoning. When I found out that they were afraid that the primary leans that PACE provides, I thought they were very short sighted, because, of course, by increasing the energy efficiency and renewable energy independence of each building, you increase the value of the property, and that translates across communities, ensuring the long term viability of the real-estate markets and guaranteeing that the outstanding loans will be paid with their interest. It also will create new jobs, and train the US construction industry to build quality efficient net-zero buildings for our future.

When it was explained to me that their short-sighted legal objection was motivated because FHMA and FRMC are NOT FEDERAL LENDERS but simply INSURE PRIVATE SECTOR LOANS on the backs of tax payers! I then concluded that this legal challenge was not coming from educated federal housing experts, but from economic power brokers who were willing to sacrifice our future for the chance to keep a broken system of energy waste, pollution, and economic crisis going in a cycle of boom and bust so that they could take advantage of the foreclosure crisis and the spikes in energy commodities.

Further, Mello-Roos type local property taxes are NOT UNDER FEDERAL JURISTICTION, under the Commerce Clause of the US Constitution, the Federal Government can not levy such tax within the individual States, and under the 10th Amendment such property taxes fall are clearly under State's Rights, and the power of local municipal corporations to levy such leans in order to improve the quality and independence of their individual communities should not be infringed.

Therefore, I urge you to decide in favor of PACE type programs in every state, it is in the long-term interest of our citizens, their communities, and our nation.

PACE was developed in 2007 to enable local communities interested in increasing energy security and electric grid reliability, creating jobs and reducing emissions of greenhouse gases and other pollutants to provide an affordable mechanism for homeowners to make energy efficiency or renewable energy improvements. PACE is a means by which local governments can effect these important public purposes using longstanding, widely-adopted land-secured municipal finance structures, known around the country as “improvement districts”, “special tax districts”, “assessment districts” and the like (collectively “land-secured municipal finance districts”).

PACE enables local communities to finance energy efficiency and renewable energy improvements with little or no upfront cost, at competitive interest rates and over a time period that matches the period over which energy savings associated with such improvements are realized. With PACE, assessments are made against property that benefits from energy efficiency or renewable energy improvements financed by a local government, tying the repayment obligation with the beneficiary of the financing.

Because of its unique ability to spur homeowner investment in energy efficiency and clean, on-site renewable energy, PACE legislation was passed by 27 states in just two and a half years. It has strong bi-partisan support at the local, state and Federal levels. PACE programs have been received with such overwhelming public support because they address one of the most important problems facing America, and offer an ability to scale that is unmatched by other alternatives.

We believe that FHFA’s action to unilaterally halt local government PACE programs on July 6, 2010 was unwarranted. This rulemaking provides an opportunity to establish a fact-based record and correct misinformation and misunderstandings, to the benefit of all stakeholders: local governments, mortgage lenders, homeowners, and our nation. We appreciate the opportunity, and urge FHFA to look for ways to accommodate these broadly beneficial programs. To this end, we recommend that the FHFA adopt reasonable underwriting standards that ensure local PACE programs are designed to maximize benefit and minimize risk, as described below.

1) PACE assessments are valid - and are not “loans” as asserted by FHFA
FHFA has repeatedly referred to PACE assessments as “loans.” To the contrary, they are property assessments with characteristics similar to those of more than 37,000 other land-secured special assessment districts in the United States that are rooted in hundreds of years of state and local law. Such districts are typically created at the voluntary behest of property owners who vote to allow their local governments to finance public improvements such as sewer systems, sidewalks, lighting, parks, open space acquisitions, and business improvements on their behalf. Other districts allow property owners to act voluntarily and individually to adopt municipally financed improvements to their property that are repaid with assessments. These assessments are secured by liens, just as with property tax liens, which have always been senior to privately-held liens such as the first mortgage. PACE is but an additional public purpose sought to be carried out by municipalities using an established finance structure well familiar to the real estate and mortgage industries.

2) PACE assessments present minimal risks to lenders, investors, homeowners and GSEs
FHFA asserts that PACE presents “significant safety and soundness” concerns, but there is no evidence that this is true. There is long-standing experience, borne out by studies, that energy efficiency and renewable energy improvements reduce homeowners’ energy bills and increase their property’s value, strengthening their financial position and increasing the value of a lender’s collateral. PACE financed improvements allow homeowners to hedge themselves against fuel price spikes and rising fuel costs over time. These factors lessen, if not eliminate, the safety and soundness risk than the FHFA has asserted. Local governments that established PACE programs prior to the July 6, 2010 action by FHFA developed program standards to protect lenders and consumers. The White House (October 18, 2009) and the Department of Energy (May 7, 2010) both published national PACE guidelines with clear, strong underwriting standards to ensure that homeowners are able to afford the improvements. A bi-partisan bill in the House of Representatives (HR 2599 – Hayworth R-NY19) further delineates national standards to minimize risk to lenders and consumers. Finally, the early results of PACE pilot programs in Boulder County, CO; Sonoma County and Palm Desert, CA; and Babylon, NY; show that PACE presents minimal risk: there are only a handful of known defaults out of nearly 3,200 upgraded properties, substantially fewer than the rate of default for non-PACE property-owners in the same districts.

3) Home energy improvements financed with PACE achieve important economic and environmental benefits
State and local governments have also passed PACE laws because PACE has great potential to help governments attain important economic and environmental goals. For example, according to a May 2011 Department of Energy study, the Boulder County PACE program created over 120 jobs, generated more than $20 million in overall economic activity and reduced consumers’ energy use by more than $125,000 in the first year alone. These benefits are important by themselves. In developing a rule that serves the public interest, the FHFA must weigh perceived risks against economic benefits that clearly reduce default rates.

4) Proposed Rule:
We strongly urge FHFA to reconsider its blanket opposition to PACE programs and to revise the Statement and the Directive. We recommend that FHFA’s proposed rule provide that Fannie Mae, Freddie Mac, and any other mortgage lenders regulated by FHFA (Enterprises) be allowed to buy residential mortgages with PACE assessments that are originated by programs that conform to standards and guidelines such as those established in the Department of Energy’s “Guidelines for Pilot PACE Financing Programs” (May 7, 2010) (DOE Guidelines) or HR 2599 (The PACE Assessment Protection Act) to protect the interests of local governments, homeowners, mortgage lenders and the Enterprises.

5) EIS Scoping Comments
The Proposed Action in FHFA’s Environmental Impact Statement (EIS) should be changed to provide that the Enterprises may purchase mortgages subject to a first-lien PACE obligation or that could become subject to first-lien PACE obligations so long as the applicable PACE program conforms to standards and guidelines such as those established in HR 2599 or the DOE Guidelines. If FHFA does not alter the Proposed Action, one of the alternatives analyzed in the EIS should be revisions to the FHFA’s July 6, 2010 Statement and February 28, 2010 Directive to provide that the Enterprises are permitted to purchase mortgages subject to a first-lien PACE obligation or that could become subject to first-lien PACE obligations so long as the applicable PACE program conforms to standards and guidelines such as those established in HR 2599 or the DOE Guidelines.


Michael Russell
BPI - HERS Consultant
San Diego, CA

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