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Late last year, the Federal Housing Administration announced a new PowerSaver loan program to provide financing for home energy efficiency improvements. The program comes on the heels of the downfall of residential Property Assessed Clean Energy (PACE) financing, which allowed homeowners to pay back energy efficiency improvements via long-term property tax payments, as well as to pass the payments on to the next homeowner. Can PowerSaver adequately replace PACE?
First, a bit of background on PowerSaver. The loan program is part of FHA’s Title I Property Improvement Program and the basic principle is that the FHA provides loan insurance for participating private lenders who loan to eligible homeowners. Federal insurance provides 90% coverage for the loan, with the lender only accountable for the remaining 10%, with limits on the portion of a lender’s portfolio in the Title I program. Participating homeowners pay a premium equal to 1% of the loan amount multiplied by the loan term. For example, a $10,000 loan financed over 15 years would have an annual premium of $1,500.
Loans are capped at $25,000 with 15 year terms for energy efficiency and 20 year terms for renewable energy investments. A list of eligible improvements can be found here. Borrower’s can only be owners of single-family, detached homes with a 660 credit score and a maximum 45% debt-to-income ratio. Loans under $7,500 can be unsecured, but larger loan amounts must be secured by the first mortgage.
The following table illustrates the major differences between PACE and PowerSaver:
|Backstop||Federal insurance||Local government|
|Credit score||> 660||n/a|
In most cases, the differences make the PowerSaver loan significantly less attractive than PACE financing. A PACE lien came before the mortgage, potentially allowing PACE programs to sell their obligations on the market and allowing local governments to obtain low interest rates. PACE liens did not require credit scores, allowing many Americans with damaged credit (but good property tax payment history) to make their home more energy efficiency and cost effective. Finally, the lien could be transferred between property owners, removing the discontinuity between the lifespan of effective energy efficiency improvements (15 years) and the average stay in one home (5 years).
Perhaps most powerfully, PACE allowed cities and counties to become a hub of energy planning for their communities, whereas PowerSaver simply backstops the private lending market.
FHA should be applauded for expanding the financing options available to homeowners for energy efficiency and renewable energy improvements, but their offering will not provide the same power as PACE.
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Litigation Moves Forward. The first Court orders regarding elements of the PACE lawsuits were issued by Judge Claudia Wilken on December 20th. The orders cover Sonoma County’s request for a preliminary injunction and the Court’s desire for the US Department of Justice to weigh in. The court has not yet made any decisions on the motions. However, while the judge stated that she was not inclined to require FHFA to affirmatively support PACE at this early stage of the case, she indicated that she was considering whether to order Federal Housing Finance Agency (FHFA) to begin a formal rulemaking process regarding PACE. We will certainly pass along any more information as it develops so that the PACE community can be ready to provide detailed comments. You can also check the www.PACENOW.org website for updates.
Legislation Moves Forward. While Congress did not take action on the PACE legislation that was introduced in 2010, work is continuing to prepare for the next session. There are plans for new, bi-partisan, PACE legislation to be introduced early in the year. Will send another update when this moves forward.
Commercial PACE Moves Forward. While residential PACE has mostly (but not entirely) been put on hold, a number of jurisdictions are moving forward with commercial programs. For example, Boulder County recently issued its first bond for commercial PACE and will now be funding the first 29 projects. Sonoma County continues to fund commercial projects and Los Angeles and Washington, DC are just two of the communities planning commercial programs in the new year. To assist with this effort, the US Department of Energy just released a section of their “Finance Guide” (see chapter 13, drafted by Renewable Funding) to assist communities with designing commercial PACE programs. Lastly, a report from the Clinton Climate Initiative, Lawrence Berkeley National Laboratory and Renewable Funding on existing and planned programs will be out soon.
PACENOW Hires Executive Director. PACENOW hired David Gabrielson as its new Executive Director. David has extensive experience in public finance at leading firms such as CS First Boston and JP Morgan and is also a town councilman in Bedford, NY, where he worked to establish an energy efficiency and renewable energy financing program using PACE. He has given the PACENOW website a facelift – check it out. You can reach him directly at email@example.com.
Yesterday Michigan governor Jennifer Granholm signed the state’s Property Assessed Clean Energy (PACE) law, making Michigan the 24th state to enable cities and counties to provide financing for on-site renewable energy and energy efficiency improvements via the property tax system. … Read More
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In mid-October, yet another municipality joined the growing list of lawsuits against the Federal Housing Finance Agency, Fannie Mae, and Freddie Mac over the popular Property Assessed Clean Energy (PACE) program. Arguments in the court case will be heard next week.
A federal judge will consider next week whether to dismiss lawsuits questioning the Federal Housing Finance Agency’s decision to effectively shut down a White House-supported home energy efficiency program.
In a closely watched case, U.S. District Judge Claudia Wilken of the Northern District of California will hear arguments Dec. 2 over whether to dismiss several lawsuits against the agency, including one filed by the state of California.
I’m hopeful that the plaintiffs can win – PACE could really open the door to major improvements in home energy efficiency and expansion of distributed renewable energy.
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Unlike many cities, Portland, Maine, has forged ahead with a significant energy efficiency plan without federal stimulus dollars. Simply borrowing money through bonding to investing in energy saving improvements, the city will – over 20 years – reduce operating costs by $700,000 per year and shrink its carbon footprint by 30 percent.
PORTLAND — The City Council agreed Monday night to borrow as much as $11 million for energy improvement projects in 30 municipal and 15 school buildings throughout Portland…Councilor David Marshall said the energy conservation measures will enable the city to reduce its carbon footprint by more than 30 percent.
…Ameresco [a Massachusetts-based consulting firm] has said that the projects will save about $700,000 a year in utility costs, and by the end of the 20-year bond period will pay back the cost of the work and interest on the bond.