Fannie Mae and Freddie Mac have already put a halt to many state clean energy and energy retrofit programs affectionately known as Property Assessed Clean Energy (PACE) or PACE like obligations. In July, California Attorney General and candidate for Governor, Jerry Brown, filed a lawsuit against Fannie Mae and Freddie Mac alleging that Fannie Mae and Freddie Mac have violated California law and requesting, among other things, a declaration that the PACE program does not violate the standards of Fannie and Freddie. There is pending Congressional legislation regarding this issue; however, the time line for such action is uncertain.
While lawsuits and pending legislation await their day, Fannie Mae and Freddie Mac seem to be digging in their heels a little more. On Tuesday, Fannie Mae and Freddie Mac issued additional guidance to lenders. Under the guidance, Fannie and Freddie will not purchase mortgages secured by properties subject to PACE obligations that provide for first lien priority.
To add insult to injury, at a time when many homeowners are attempting to refinance their homes to take advantage of historically low interest rates, Fannie and Freddie now require that borrowers with sufficient equity pay off the PACE obligation in full as a condition to refinancing. Homeowners who do not have sufficient equity to pay off the PACE obligation can refinance with the obligation in place, however, the PACE obligation must be included in the monthly debt payment to income ratio.
It is clear that Fannie and Freddie have not seen the light of day. Prior to Fannie and Freddie entering the fray, PACE programs were considered to be a significant boost to the solar and energy efficiency market as they removed the upfront cost barrier. Though the time line for Congressional legislation remains unclear, those up for re-election may want to put their support behind PACE as PACE would surely boost green collar jobs.
Walter … as a 26 year veteran of the mortgage business (who happens to be 100% focused of finding ways to fund energy upgrades and retrofits as part of 1st mortgage loans)the PACE story is frustrating, without a doubt. The problem is that the PACE loans, just like the Fannie Mae & Freddie Mac loans must be in 1st lien position so they can be sold into the bond market … so the design of the PACE loan would need to be changed to make them work in concert with the primary source of financing for homes all across the country.
For the folks that already have PACE loans that are attempting to refinance, this is a tough pill to swallow … for folks that want to energy upgrades to their homes and include them in with a refi, there is a great tool that exist in the market, ready to go … an FHA EEM (Energy Efficient Mortgage) … and this thing is really cool … lets say you have a home in San Jose, CA (Santa Clara County)… you can get a new 1st mortgage, on a refi, up to $729,750, at 97.75% loan to value, with an additional $31,152 for energy related upgrades to be completed after the closing … all at a rate of 4.5% with no points … I know it isn’t the answer for everyone, but it beats the heck out of paying those high power bills.
if you need more info, shoot me an email at “email@example.com”, or call me on my cell (770) 365-7769.
What many don’t realize is that PACE is not the best financing option for a solar installation. It should be treated as a program if you can not get financing in a better way. I wrote a blog post about it. Check it out….
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