Reviving PACE: Page 2 of 2

Removing RE & EE Barriers
States with PACE-enabling laws.

But many in the renewable energy, affordable housing, real estate, environmental, local government, and venture capital sectors think that Fannie and Freddie’s concerns are misplaced—PACE tends to self-select responsible and stable property owners, and the default rate on PACE properties is 0.1%, while the national average for mortgage default is more than 30 times that (3.2%). No matter, though, for PACE is still stalled out until federal regulators change their minds.

Perhaps the courts will free PACE. PACE advocates won a case in the Northern California U.S. District Court that required the FHFA to undertake a formal “rule-making” exercise. The court also required the preparation of an environmental impact statement (EIS) evaluating the consequences of the federal government’s change in policy. Sometimes, the open process of an EIS results in government making a better decision.

The FHFA appealed the ruling to the U.S. Ninth Circuit Court of Appeals, which allowed the FHFA to postpone implementing a final rule. If the FHFA wins on appeal, the rule-making process will likely stop, unless the FHFA changes its decision or has it changed by the White House. On June 15, 2012, the FHFA issued a proposed rule that would have the effect of killing residential PACE programs.

Perhaps Congress will free PACE. The PACE Protection Act of 2011 (HR 2599, 112th Congress) has 54 cosponsors from 15 states. It would: 

  • Rescind the FHFA, OCC, Fannie and Freddie 2010 guidance.
  • Prohibit discrimination against PACE homeowners and communities.
  • Declare that PACE is an assessment, not a loan.
  • Limit any risk to Fannie and Freddie by requiring national program standards, underwriting criteria, consumer protections, and qualifying improvements and contractors. 

The legislation would define PACE activities to include water and energy efficiency and renewable energy retrofits of most kinds. There have not yet been hearings on the bill in the House of Representatives, and no companion legislation has been introduced in the Senate. 

Perhaps the White House will free PACE. It could tell the FHFA to reverse its course. It is a jobs program in an election year, after all.

An ECONorthwest ( study commissioned by PACENow found that for every $1 million spent locally, $10 million in gross economic output; $1 million in combined federal, state, and local tax revenues; and 60 jobs result. And rather than increasing the risk of default, ECONorthwest found that PACE’s lowering of energy operation costs and increasing of home values would decrease the risk of default.

While the Obama administration is supportive of PACE, the FHFA is an independent regulatory commission that is not directly answerable to the President, unlike most federal agencies. FHFA Administrator Ed DeMarco fears PACE will result in the federal taxpayers not getting as much money back for the Freddie Mac- and Fannie Mae-backed loans that are ultimately guaranteed by the federal government (aka “taxpayers”). As long as he’s in office, residential PACE is likely dead. The best hope for residential PACE is either for Congress to enact a law that gives national blessing to the local programs or for the President to convince the Senate to confirm his appointee, neither of which is likely to happen until after the next election.


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