Does a Riverside County, CA, residential energy financing program put thousands of homeowners on a collision course with the Federal Housing Finance Agency (FHFA)?
In a proposed rule-making, the FHFA has suggested that Property Assessed Clean Energy (PACE) policies represent a threat to the safety and soundness of mortgages held by government-backed Fannie Mae and Freddie Mac. PACE is a unique financing strategy that allows homes and businesses to invest in significant energy efficiency and renewable energy upgrades and pay them back through a property tax assessment (for an explanation of PACE, see this PACE 101 slideshow). The fight with FHFA stems from these assessments being “first liens,” e.g. in the event of bankruptcy, they are paid back before the mortgage holder (FHFA’s Fannie or Freddie).
The FHFA’s initial ruling in 2010 brought most residential PACE programs to a screeching halt, because residential participants would be threatened with having to pay their entire mortgage – in full – at any time. Residential PACE programs in Boulder, CO, and Sonoma County, CA, and elsewhere were suspended after the FHFA ruling.
But Riverside County launched its Home Energy Renovation Opportunity (HERO) Financing Program in late 2011, almost a year after FHFA had thrown down the gauntlet. Since then, over 2,000 homeowners have signed up (acknowledging the FHFA threat in writing) and proceeded with tens of millions in home renovations improving efficiency, generating local energy, and creating jobs. These participants have already met thresholds for positive equity in their home, and been current on the mortgage and property tax payments.
By keeping the program alive and using strong guidelines for participating homeowners, Riverside County puts a serious question to Fannie and Freddie: are they willing to default or accelerate mortgages on thousands of homes, all with mortgage holders who are customers in good standing?