The Federal Housing Finance Agency has officially nixed local programs that use property tax bills to back loans for retrofitting homes with solar power.
The problem, the agency said, is that the loans have priority over the mortgages on the homes, and might put some homeowners at greater risk of default.
In a statement released this week, the FHFA said it is urging "state and local governments to reconsider these programs and continues to call for a pause in such programs so concerns can be addressed."
The loans are part of a program called Property Assessed Clean Energy, or PACE. It involves a locality -- usually a city -- offering loans to homeowners to defray the up-front cost of installing solar panels. Those loans can then be packaged as bonds for investors. The loan is paid back by an extra fee tacked on to the property tax, and is a first lien, meaning the creditors are ahead of the mortgage lender.
A number of states and localities have adopted such programs -- Berkeley, Calif., was among the first, in 2009 -- and 22 states have passed laws allowing cities to set the programs up. California was set to roll out the program statewide. The new rules don't apply to anyone who has already taken part in the program, but they will keep them from expanding.
The FHFA says there are problems. Among them are the standards used for lending. Often the amount of the loan is based on the percentage of the assessed value of the home rather than ability to pay. In addition, a first lien loan is another payment the homeowner has to make, which in turn alters the risk profile of the borrower. This upsets the calculations done by other investors, especially those in mortgage-backed securities.
The FHFA sent a letter to Fannie Mae and Freddie Mac, which together back half of all the home loans in the U.S. The letter told the two agencies to take steps to protect themselves from the possibility of default.
But some of those steps would make PACE financing much more difficult, if not close it off entirely. Among them are adjusting loan-to-value ratios to reflect the maximum possible PACE loan amounts -- essentially counting the PACE loan along with the mortgage when calculating risk.
Berkeley offers up to $37,500. Nils Moe, assistant to the mayor, said the new rules basically preclude the statewide rollout.
"It will take a legislative fix to set everything right," he said. However, he is confident one will be forthcoming. And while he understands the FHFA's objections, he said he wasn't convinced they would be a real world concern."I understand how this would be a big concern in theory, but it really shouldn't be a big issue," he said.
The counterargument is that the PACE obligation is basically a tax lien on the property and in the case of Berkeley's program is passed on to whoever buys it (assuming the loan isn't paid off). In that sense it is no different from other tax liens. A study by clean technology research firm Pike Research notes that such liens in theory depend on the property rather than the owner, though some buyers might negotiate with the seller to pay off liens before closing.
1 comment:
the one thing missing in the equation is the simple fact that the purchase is not just a trip to Hawaii or a Humvee, like most people unwisely spent the money on in the past...
This power plant on the roof will actually save money, and lower the expenses of the home owner, so they can afford this extra burden. A penny saved is a penny earned.
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