The long-awaited notice of proposed rulemaking on PACE (property assessed clean energy) financing by Fannie Mae and Freddie Mac was released by the Federal Housing Finance Agency (FHFA) on June 15. The results are disappointing and consistent with FHFA’s narrow view of its responsibilities at the helm of secondary mortgage financing giants Fannie Mae and Freddie Mac.
As regulator, FHFA is charged with ensuring that Freddie and Fannie operate in a “safe and sound manner.” As conservator, the agency is charged with putting each “regulated entity into safe and solvent condition.” And FHFA and its director, Ed DeMarco, have certainly done some good. Fannie Mae’s first quarter 2012 results showed a $2.7 billion profit, its first reported net gain since it was put into conservatorship in 2008.
At the same time, FHFA is widely considered a roadblock to much-needed mortgage industry reforms that would stabilize the housing sector and bolster U.S. economic growth. The agency’s refusal to consider principal writedowns for underwater home mortgages held by Fannie and Freddie—an approach that FHFA’s own data has suggested is cost-effective -- has drawn the ire of many, including HUD Secretary Shaun Donovan, the attorney general of California, and Democratic members of Congress.
FHFA appears to be taking a similar path with respect to PACE. As I wrote last fall, PACE is a potentially valuable financing mechanism to create U.S. jobs and to advance energy efficiency in residential and commercial buildings. But FHFA’s 2010 refusal to let Fannie and Freddie participate in PACE programs shuttered most residential PACE efforts and cast a cloud over the growing PACE industry.
In PACE programs, local governments front the cost of energy efficiency improvements like solar panel installation and then levy special taxes on homeowners who choose to participate. The governments secure their investment by placing a lien against participating properties, and it's those liens the FHFA objects to. The agency says because those liens are first in line, ahead of mortgages on the property, they raise safety and soundness concerns for mortgage lenders.
Next page: FHFA supports a ban on PACE
I am in banking and familiar
I am in banking and familiar with mortgage lending. I believe PACE feels risky to FHFA because current underwriting standards paint an incomplete picture. Mortgage lenders today factor in Principal, Interest, Property Taxes, and Insurance, but utility costs (which vary greatly) are ignored. If mortgage underwriting would include projected or historical energy costs in the Debt to Income ratio, mortgage lenders would "feel" the benefits of EE improvements, enhance their evaluation of the total cost of homeownership, and REDUCE risk. Appraisers could use the same numbers to add value for EE upgrades. And homeowners could qualify for a larger mortgage if the home has been improved.
Very nice
Very nice
Who cares what mohamed the
Who cares what mohamed the pedophile thinks
The released proposed rule is
The released proposed rule is another step backwards for the credibility of FHFA. They are salmons swimming against the current of evidence and expert opinion. The opinion isolates each argument for PACE, or why PACE does not represent a "threat" to primary mortgage holders, and disputes them, often using tortured logic, to dismiss valid points and ignores the arguments in the aggregate. As an example of some of this intellectual dishonesty - they dismiss the claim that homeowners would save more then the PACE financing would cost (the requirement that the savings to investment ratio be greater than one) by concluding that homeowners might just spend the money anyway or keep their homes cooler/warmer if their home is more efficient. Mind boggling. Now, take that into consideration along with the fact that residential PACE loans would typically be in the range of what mortgage brokers charge in FEES for a refinance. That level of ignorance is hostile towards critical thinking.
I would would like to think
I would would like to think that the money I saved on energy efficient upgrades would be invested, spent wisely etc, and that other people that made an intelligent, informed decision to invest in energy efficient upgrades to do the same. I don't know much about this proposal but I see home improvement consumer lending daily and aside from GE Capital, Wells Fargo and TD Bank, there's no big players. Many others that had financed in this area have since left. Approval rates at these lenders are way down from years past. Banks don't seem to like these loans and from a consumers standpoint, if I'm in financial trouble, this debt isn't getting paid first. I think we have to acknowledge that unemployment/underemployment is still very high and things are unstable. $50 saved monthly on utility bills doesn't go far if you've lost a job, are making half of what you use to, etc.
I would would like to think
I would would like to think that the money I saved on energy efficient upgrades would be invested, spent wisely etc, and that other people that made an intelligent, informed decision to invest in energy efficient upgrades to do the same. I don't know much about this proposal but I see home improvement consumer lending daily and aside from GE Capital, Wells Fargo and TD Bank, there's no big players. Many others that had financed in this area have since left. Approval rates at these lenders are way down from years past. Banks don't seem to like these loans and from a consumers standpoint, if I'm in financial trouble, this debt isn't getting paid first. I think we have to acknowledge that unemployment/underemployment is still very high and things are unstable. $50 saved monthly on utility bills doesn't go far if you've lost a job, are making half of what you use to, etc.
Sounds like more complexity
Sounds like more complexity that most towns are equipped to tackle. Rather than have local governments get involved financially with energy improvments they should probably consider the City Benefits program offered by AmeriSus. The company builds smaller eco-homes that are more affordable and more efficient than most of what gets built. The company will pay cities that support approval of eco-projects using their homes $2500 per home with no caps and the smaller the home the larger the payment. A simple 50 unit subdivision could see $125,000 going to the town budget.
RileyT, the emphasis of PACE
RileyT, the emphasis of PACE is on retrofitting existing construction that could be made significantly more energy efficient - and/or clean energy producing. We have far more inefficient housing stock in existence that could be assisted by PACE than AmeriSus will build in 100 years. You are talking complete apples to oranges.