What's Happening from Environmental Building News
Nationally Stalled PACE Program Moves Forward in Vermont
By Evan Dick
The much-anticipated Property Assessed Clean Energy (PACE) program has been on a long and costly holding pattern in 27 states since July of 2010 (see “Mortgage Policies Threaten PACE Programs,”
EBN
Aug. 2010). A unique financing tool allowing homeowners to install renewable energy systems or make major efficiency upgrades and then pay for them gradually through their property tax bills, PACE has been hung up over questions about defaults. However, legislative action in Vermont this year promises to restart the program there on January 1, 2012, possibly helping PACE regain momentum throughout the U.S.
The PACE program was designed to make long-term, low-interest energy-improvement loans available to property owners (see “PACE Financing for Energy Improvements
,
”
EBN Mar. 2010) through municipalities. Property owners would pay off the loan via a line item on their property tax bills, with the debt following the property if it is sold. However, the Federal Housing Finance Agency (FHFA) raised concerns about whether, in the case of default, PACE liens would be senior to mortgage liens. Since then, PACE has been stalled nationally.
Vermont lawmakers addressed the concerns of the FHFA by changing the lien status of PACE loans from senior to junior—the primary adjustment that allows the program to restart. Because the junior status increases the risk for local governments in the case of defaults, the legislature has created a loan-loss reserve fund. Money for this fund comes from borrowers, who will now have to pay a 2% fee up front, and from the Regional Greenhouse Gas Initiative.
“This thing isn’t dead,” Scott Muldavin, executive director of the Green Building Finance Consortium, told
EBN, analyzing the state of PACE. “There is lots happening around the country to get this back on track.” Muldavin notes that PACE programs are “incredibly important” as a way for property owners to afford substantial retrofits without having to pay cash or apply for a market-rate loan. “That’s why the PACE program is so exciting to people,” he said. ”You are able to do much more significant investment.”
When asked whether the approach taken in Vermont could work nationally, Muldavin said, “I think the concept is definitely something that can be worked out in other states. If this really creates value, and isn’t too risky, why wouldn’t a first mortgage holder want to see an increase in value?”
Vermonters will be able to start taking advantage of this program early next year, but a national fix may also be on the way. Draft legislation being sponsored by three California representatives aims to restructure PACE, prohibiting FHFA from “greenlining” by restricting lending or increasing underwriting standards for PACE properties. To address FHFA’s concerns, the bill requires PACE borrowers to have 15% equity in their homes, verifies the borrowers’ property tax payment history, and requires an energy audit to ensure that projects are cost-effective. Unlike the Vermont fix, this bill does not change the lien status, but upon foreclosure only the delinquent PACE payments—not the full debt—would be required.
For more information
PACE NOW
www.pacenow.org/blog/
July 19, 2011
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