PACE Troubles From Fannie and Freddie

Thu, 2010-07-01 05:28

The Property Assess Clean Energy programs, PACE, have been put on hold. So far 28 states have or are working on putting PACE programs in place. With hundreds of millions of dollars at stake, Fannie Mae and Freddie Mac have put the programs on hold.

These incredibly innovative PACE programs work by allowing homeowners to invest in the energy efficiency of their property even if they will not be living in the home for more than a few years. The way it works is that the homeowners borrow the money from the city and the city bundles the loan as a municipal bond. The homeowner then pays the city back through increased property taxes. This way if the homeowner sells the home, the next homeowner is then responsible for the higher property taxes. The key to the program's success is that the monthly energy savings are supposed to be less than the higher property tax payments.

Freddie and Fannie aren't too happy about this and are threatening not to back homes that have higher PACE property tax assessments. They fear that in the event of a default that they will get even less money since property taxes are paid before the mortgage lenders in the case of default. I am sure that this will get worked out as the current White House administration is really backing PACE and with all of the other troubles that Fannie and Freddie have I can't see them sticking to their guns on this one.

The good thing about this is that the Fannie and Freddie concerns will likely lead to greater oversight and controls of the PACE programs to really ensure that homeowners are making improvements that actually reduce their energy bills. 

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