Some bad news for PACE financing. As you may remember, after FHFA took action to stop residential PACE programs, a number of entities sued FHFA, claiming their action was not lawfully done. In a previous decision, the District Court for the Northern District of California forced FHFA to go through a rulemaking process on its PACE actions, and over 40,000 entities provided comments in support of PACE. FHFA appealed, and today, the 9th Circuit Court of Appeals vacated the order, and dismissed the case.
From the decision:
“The panel vacated the district court’s order and dismissed for lack of jurisdiction a case challenging a Federal Housing Finance Agency directive. The FHFA issued a “directive” preventing Freddie Mac and Fannie Mae from buying mortgages on properties encumbered by liens made under property-assessed clean energy programs (“PACE”), which finance environmental improvements on residential properties. The panel held that the FHFA’s decision to cease purchasing mortgages on PACE-encumbered properties is a lawful exercise of its statutory authority as conservator of Freddie Mac and Fannie Mae. The panel held that the courts have no jurisdiction to review actions that the FHFA takes as a conservator, and dismissed the case.”
You can read the whole decision here: PACE Decision 9th Circuit (pdf).
What does this mean? We don’t yet know whether the plaintiffs (State of California, Sonoma County, Placer County, City of Palm Desert and the Sierra Club) will petition for a larger panel on the 9th Circuit to hear the case “en banc” or whether they will petition the Supreme Court to review the case. If this were to stand, as far as we can tell the FHFA could dispense with the rulemaking process, and we are back to the status quo before the lawsuit.
Commercial PACE programs remain unaffected.
In a rather cruel irony, on the same day as this decision, the University of North Carolina released a study showing that owners of energy efficient houses are 32% less likely to default on mortgages. So in essence the FHFA won a battle to prevent a program that will make defaults less likely.
More news as we get it.
It is possible that the FHFA continues with the rulemaking process and engages constructively. Especially since there was such a huge response: here are the filings for suggestions for the proposed rule, and here are the comments to the proposed rule itself, and here’s our coalition response (pdf), chock full of great arguments and responsive data. Here’s hoping this engagement by the public proves persuasive.