Lenders deal blow to PACE energy finance program (San Francisco)

A nationwide innovative financing program, backed by federal stimulus funds, to help homeowners make energy efficiency improvements is essentially frozen for homeowners as the nation’s largest mortgage lenders refuse to underwrite home loans tied to the program.

Property Assessed Clean Energy financing districts allow homeowners to borrow against their property taxes to make energy efficiency improvements to homes, and then pay back the assessment through an increase in their property taxes over 20 years.

The property tax assessment holds senior lien status, meaning if a home goes into default, that bondholders that financed the improvements get paid back before the mortgage lender gets paid back for the home.

Fannie Mae and Freddie Mac, the government-backed home mortgage lenders that control 80 percent of American home mortgages, took exception to the status of the assessments and last month said they wouldn’t accept home mortgages that included the PACE lien – which essentially halted the program for homeowners across the country.

The Federal Housing Finance Agency Tuesday said energy retrofit lending programs and specifically PACE programs, "present significant safety and soundness concerns" that government-backed home lenders must address.

"First liens for such loans represent a key alteration of traditional mortgage lending practice. They present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed securities and are not essential for successful programs to spur energy conservation," the letter said.

Seventeen states and some 400 cities and counties had implemented PACE programs when Fannie and Freddie pulled the plug, and PACE supporters have been scrambling to find a resolution.

But, in a letter to a group lobbying for PACE, Cisco Devries, head of Renewable Funding which manages and finances PACE programs including GreenFinanceSF in San Francisco, said discussions between the Obama administration and the Federal Housing Finance Agency "have not been successful."

Read the full story in the San Francisco Business Times.