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California sues mortgage companies over PACE loans

July 15th, 2010

From Green Right Now Reports

California Attorney General Edmund G. (Jerry) Brown Jr. is suing mortgage companies over their refusal to allow PACE funding for clean energy improvements on homes.

Solar panels were being financed with PACE funding in many states. (Photo: Michael Hieber/Dreamstime.com)

PACE (Property Assessed Clean Energy) money allows homeowners to finance energy efficiency projects like solar panels through their property taxes. Cities or counties that offer the plans can sell bonds to generate the money for PACE loans, which are then attached to a homeowners’ property tax bill. The plan provides homeowners with the upfront money they need for big improvements, and allows them to stretch out their payments over 20 years, making large capital improvements like solar arrays possible.

The PACE loans or assessments (that is the debate) stay with the property, providing stability for both the lending entity and the homeowner, who may need to move before the capital improvement is paid off.
(See more about how PACE funding works.)

PACE plans, originally conceived of in California, were spreading rapidly across the country with state legislatures passing bills to enable cities to move forward. More than half of the counties in California offer the program, and in some areas, such as Sonoma County, PACE has funded more than 800 solar and other energy projects.

But the Federal Housing Finance Agency, effectively halted PACE funding over the past two months, when it directed Fannie Mae and Freddie Mac to disallow PACE funding on homes with federally backed mortgages. Together, Freddie Mac and Fannie Mae, back about half of the residential mortgages in the U.S.

The FHFA put the kibosh on PACE loans because such liens would take priority over the home’s mortgage in case of a default. The federal housing regulatory agency said that PACE was adding risk to the still-recovering housing market.

Brown’s lawsuit, filed on behalf of California homeowners in the U.S. District Court for the Northern District of California, maintains that PACE funding is allowed under state law and should be treated as an assessment and not secondary financing. The suit asks the court to restrain the mortgage agencies from refusing to participate in PACE programs.

Brown characterized his suit as trying to save the energy-saving, job-generating PACE program from “regulatory strangulation.”

“Fannie Mae and Freddie Mac received enormous federal bailouts,” Brown said, “but now they’re throwing up impermeable barriers to bank lending that creates jobs, stimulates the economy and boosts clean energy.”

In a news release, the Attorney General and former state governor, who’s running again for governor, listed one example of the fallout from the collapse of PACE. In San Diego, the shutdown has left more than 100 people trained in energy retrofits without jobs.

Resources:

The PACE advocacy PACENow.org has assembled a list of supporters that includes elected leaders and groups that endorse these programs.



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