In May, Fannie Mae and Freddie Mac threw a monkey wrench into programs set up to encourage and enable homeowners to make energy savings investments in their homes. PACE (Property Assisted Clean Energy), described in this earlier post, funds energy improvements as a property betterment, allowing the payments to be made alongside property taxes and passed on to subsequent owners.
The two entities wrote letters “reminding” mortgage lenders that energy loans funded by PACE structures could not be senior to a mortgage sold to them. The PACE liens look like property tax liens, so mortgage lenders are now be concerned that the two big buyers of mortgages will not take mortgages on those properties. Neither Fannie nor Freddie proposed a solution to this problem, simply dumping it in the hands of the homeowners and program managers for PACE programs, to predictable effect. The Department of Energy and several states wrote Fannie and Freddie, asking them to address the problem, with no results so far.
The thought that throwing PACE programs into limbo is a sensible and necessary risk-reducing step is ludicrous. As a practical matter, having made energy efficiency improvements to their properties, the homeowners have reduced their energy spending, which over time makes more money available to them to pay their mortgage. It also makes the property more attractive to buyers. And the number of properties affected is tiny.
But what’s really offensive is that this is being done by the same people who couldn’t see the risk in highly-leveraged purchases of massive numbers of sub-prime and Alt A variable rate and option ARM loans and institutions who were a significant factor in the financial meltdown that crippled the economy. The executives and laywers at Fannie and Freddie who sent those letters should be embarrassed – and they should be taking steps to find a reasonable solution, not pretending that they are somehow being responsible stewards of taxpayer money.
- Read NY Times story, reported on June 30th.