Property Assessed Clean Energy (PACE) programs allow local governments to loan money to homeowners to do energy efficiency projects. The PACE loans are generally repaid as a property tax line item. PACE programs were initially very popular, and more than 25 states passed PACE-enabling legislation.
As discussed in earlier posts, in the summer of 2010 the Federal Housing Finance Agency put the brakes on PACE programs. The FHFA issued an advisory that Fannie Mae and Freddie Mac should put more stringent evaluation standards in place for mortgages on properties with PACE assessments. On February 28, 2011, FHFA issued a directive stating that Fannie Mae and Freddie Mac should continue to refuse to purchase mortgages on properties with PACE loans.
In the wake of the FHFA actions, several law suits were filed, including one in the Northern District of California. The plaintiffs in the California PACE case alleged that the FHFA acted without following the appropriate administrative procedures, and without doing and Environmental Impact Assessment.
The District Court issued a preliminary injunction requiring FHFA to proceed with the the necessary administrative steps that FHFA had failed to do prior to issuing its greenlining mandates.
On January 26, 2012, the FHFA began the "notice and comment" period for advanced notice of proposed rulemaking on PACE. Specifically, the FHFA's proposed action is to prevent Fannie Mae and Freddie Mac from buying certain mortgages whether or not the particular mortgage has a PACE assessment associated with it:
FHFA's Proposed Action would direct [Fannie Mae and Freddie Mac] not to purchase any mortgage that is subject to a first-lien PACE obligation or that could become subject to first-lien PACE obligations without the consent of the mortgage holder.
The wording of the proposed rule is interesting. Not only would it prevent Fannie and Freddie from buying mortgages on properties with PACE loans, but also potentially from buying any mortgages in a community that has a PACE program, whether or not the particular mortgage has a PACE loan associated with it.
The Advanced Notice of Proposed Rulemaking triggers a 60-day comment period, which opened January 26 and closes March 26. The ANPR seeks comments about both the environmental and fiscal aspects of PACE. The ANPR is here.