Thoughts on Solar by Run on Sun's Founder & CEO, Jim Jenal

Last week we wrote about the apparent moribund status of PACE financing programs - such as the LA County Energy Program - given the push back from Fannie Mae and Freddie Mac. The agencies' concern is that a PACE program institutes a lien against the mortgaged property that takes priority over the mortgage itself and that violates the terms of mortgages backed by Fannie or Freddie. On August 24 we spoke with Lauren Rank of the LA County office of Sustainability about the County's response to these developments. (Many thanks to Ms. Rank for taking the time to speak with us.)

LA County's Response

Ms. Rank reported that indeed the LACEP program is presently on hold. However, there is much activity underway in an attempt to both revitalize PACE and find alternative means of financing renewable energy and energy efficiency projects in LA County. At the direction of the Board of Supervisors, on July 22, 2010 the Chief Executive Officer issued a Report to the Board (attached) with initial recommendations on how to deal with the present situation.  Some highlights from that Report are the following:

• Legislative attempts to "fix" PACE  are underway in Washington, D.C. (more below).
• The National Association of Counties adopted a resolution urging Congress to fix PACE.
• The County is exploring Alternative Financing mechanisms including:
  • An FHA Title I loan program directed at renewable & energy efficiency projects. The loans could be either secured or unsecured with "some degree of federal subsidy."  The anticipated interest rate (based on the current market) is 6-7%. HUD indicates that loans could be available in 3-6 months. If that is true, for qualifying home owners, this might be an attractive option. However, as of now we know nothing about the qualifying criteria that will be required.
  • California Energy Commission Grant Reallocation - the CEC had previously allocated some $35 million in State Energy Program grants for various PACE programs (not including LA County) but those grants are now on hold. The CEC is considering reallocating those funds to PACE jurisdictions "where they may make the most impact." This reallocation might assist LACEP.
  • PACE with Subordinate Liens - since the sticking point is on the priority of PACE liens versus the existing mortgage, one possible solution is to issue PACE loans that are subordinate to the mortgage. That solves the Fannie/Freddie issue, but jeopardizes the ability to sell the municipal bonds needed to fund the program. The County Treasurer & Tax Collector's office is warning that this is not a viable option.
  • Statewide Whole House Retrofit Program - the State of California has set aside $140 million for the Investor Owned Utilities to implement more comprehensive, whole-house retrofits instead of simply providing rebates on individual appliances. Unfortunately, it does not appear that any of this money could be spent on financing solar installations.
  • PACE funding on non-FNMA/FMAC loans - some loans are not subject to restrictions from Fannie and Freddie and in theory these loans could move ahead with PACE funding. However, since some of those loans could subsequently be sold to Fannie or Freddie, this is not considered a particularly viable approach.

While there is clearly a great deal of effort being expended, for the near term the only option that appears to have potential to assist homeowners in adding solar is the FHA Title I loan program. As we learn more details about that program we will report on them here.

Legislative Response

The clearest path to a resolution is legislation from Congress. In the House, both Henry Waxman (D-CA) and Barney Frank (D-MA) have indicated their support for PACE protection and action by their committees is to be expected after the recess.

The bill in the House, HR 5766 by Rep. Michael Thompson (D-CA), has some 48 cosponsors (47 Democrats and 1 Republican) as of today, while the corresponding legislation in the Senate, S 3642 by Senator Barbara Boxer (D-CA) has five cosponsors (all Democrats). As there is nothing partisan about helping homeowners make their homes more energy efficient and installing renewable energy systems, those cosponsor numbers will surely increase once Congress returns from its August recess. (Of course, it would not hurt for those reading this post to contact their members of Congress and urge them to support the legislation.) The widget in the box above will update with the current status of the bill, or you can click on the "View" link to see the updated status. (Thanks to the govtrack.us website which provided the code.)

The text of both measures is identical and very short. In its entirety, here is the text of the legislation as it exists today:

SECTION 1. SHORT TITLE.

This Act may be cited as the 'The PACE Assessment Protection Act of 2010'.

SEC. 2. TREATMENT OF PACE PROGRAMS BY FANNIE MAE AND FREDDIE MAC.

(a) Adoption of Underwriting Standards- Not later than the expiration of the 60-day period that begins upon the date of the enactment of this Act, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation shall adopt underwriting standards that are consistent with the Guidelines for Pilot PACE Financing Programs issued on May 7, 2010, by the Department of Energy. Liens or other property obligations that secure property taxes or assessments under a PACE program and are consistent with such standards shall be considered to comply with the Uniform Instruments of such Association and Corporation and shall not constitute a default on an existing mortgage or trigger the exercise of lender's remedies for a property with such a lien. With respect to a property that meets the underwriting criteria of the Association and the Corporation without consideration of the PACE program lien, the Association and the Corporation shall not require repayment of a PACE program tax or assessment in order for a property owner to finance, refinance or transfer the property. The underwriting standards shall provide that, in the event that a tax or assessment under a PACE program is delinquent, only the unpaid delinquent amount along with applicable penalties, interest and costs will be subject to foreclosure and not the entire amount.

(b) Prohibition of Discrimination- The Federal Housing Finance Agency, the Federal National Mortgage Association, and the Federal Home Loan Mortgage Corporation, and all Federal agencies and all entities chartered under Federal law shall not discriminate against communities implementing or participating in a PACE program, including by prohibiting lending within the community or requiring more restrictive underwriting criteria for properties within the community.

(c) Definition of PACE Program- For purposes of this section, the term 'PACE program' means a property assessed clean energy program under which a State or political subdivision of a State levies taxes or assessments on residential, commercial, agricultural, and other real property to finance the installation of renewable energy and energy efficiency improvements.