PD Editorial: Setting the PACE for household energy saving

OK, it wasn’t quite a Rudy Giuliani-esque “you kids get off of my lawn” rant, but Jerry Brown gave America’s biggest mortgage lenders a piece of his mind.

“They’re stubborn, they’re unreasonable, they’re acting like East Coast bankers,” California’s septuagenarian governor told reporters last week in comments largely overshadowed by the vitriolic Republican convention. “I can say that, because the other politicians can’t.”

Brown was on a White House conference call touting a change in direction by the Federal Housing Administration and the Department of Veterans Affairs, which will begin supporting an innovative loan program for household energy improvements.

The source of his pique is the ongoing refusal of Fannie Mae and Freddie Mac to accommodate homeowners who use PACE - property-assessed clean energy - financing to install solar panels, tankless water heaters and other energy-saving systems.

PACE loans were created in Berkeley in 2008, and Sonoma County started the nation’s first countywide PACE program a year later. Since then, the county’s program has funded more than $50 million worth of residential energy-saving improvements that owners repay, with interest, over 10 or 20 years on their property tax bills. Commercial loans also are available.

The approach has since spread to more than 30 states and is widely seen as a cornerstone for efforts to reduce greenhouse gas emissions that are contributing to global climate change.

Solar panels and other energy-saving devices also produce big savings on monthly utility bills - $2.5 billion a month in California alone, according to the Solar Energy Industries Association. And they provide good jobs in local communities.

But growth of the program has been stunted by the refusal of Fannie and Freddie to purchase mortgages for homes with PACE projects. Their objection is that the assessments, which are secured by a property tax lien on the home, get paid first in the event of a foreclosure.

If a house is worth less than the outstanding balance on the PACE loan, the mortgage holder could suffer a loss.

As Brown noted, energy upgrades are much more likely to increase the value of a home, thereby reducing the risk to the mortgage holder.

To address the possibility of PACE loan preventing lenders from recovering their investment, California created a $10 million fund to cover foreclosure-related losses resulting from a PACE lien. A similar mechanism will be used with loans backed by the Federal Housing Administration and the Department of Veterans Affairs.

In a foreclosure, any portion of the PACE loan that’s in arrears will be paid before the FHA or VA mortgage in a foreclosure. The rest of the loan will be passed on to the next homeowner when the home is sold in a foreclosure sale.

It’s a creative solution that will benefit thousands of people with FHA and VA loans. Unfortunately, Fannie and Freddie are still holding out. But for now, it seems that all anyone can do is shout.