Fannie, Freddie Kill PACE Program

by | Jul 7, 2010

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Fannie Mae and Freddie Mac have effectively killed the Property Assessed Clean Energy (PACE) program, which allows property owners to pay for the cost of energy improvements to their homes or businesses through an additional charge on their property tax, by refusing to accept loans on buildings in the program, according to several reports.

The program lends property owners money to make energy saving upgrades and then repay the loan through a 20 year scheme secured by a lien. The lien would take priority over a mortgage repayment in the event that an owner defaulted. The program is similar to the 37,000 other lien programs throughout the country that municipalities regularly use to fund infrastructure improvements such as sewers and sidewalks.

But Fannie and Freddie said in a letter Tuesday that the PACE program was not comparable to other liens due to their “unusual and difficult risk management challenges for lenders.” The agencies also said the loans associated with the program “do not have the traditional community benefits associated with taxing initiatives.”

The two agencies, which are the largest buyers and sellers of home loans in the country, informed lenders in May that they would not accept such loans. Due to the amount of leverage the two quasi-governmental organizations have in the mortgage market, the effect has effectively brought the PACE program to a halt. According to the New York Times, some lenders have already refused to refinance homes participating in the program.

U.S. Representatives Barney Frank and Henry Waxman had sent a letter to administration officials last Friday requesting urgent action on the issue. Meanwhile, Cisco Devries, the president of Renewable Energy, the company which administers the program, suggested litigation may be necessary to resolve the issue.

The PACE program had been expected to help grow the U.S. commercial business efficiency business to up to $5.6 billion a year. Property owners had been eligible for loans up to $50,000.

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