Property Assessed Clean Energy (“PACE”) programs, which offer homeowners access to public dollars to help pay for the installation of solar panels and other energy efficiency upgrades, have become extremely popular across the country. So popular, in fact, that the U.S. Department of Energy recently committed $150 million in stimulus funds to help continue and expand PACE programs and give an economic boost to companies that install energy systems.
Recently, however, the Federal Housing Finance Agency (“FHFA”), which oversees the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”), announced that the PACE programs are unacceptable for mortgage lenders in their current form. This announcement follows the issuance by Fannie Mae and Freddie Mac of guidance letters to mortgage lenders and servicers that reiterate each agency’s prohibition against any loan (such as a PACE loan) that has a senior lien status to a mortgage.
The announcement and the guidance letters represent a blow to the Department of Energy, which backs the PACE programs. Many local and state officials have objected to the FHFA’s position, noting that the liens that secure PACE loans are secured on the same basis as other types of special property taxes or assessments, like those used to finance sidewalks and underground utilities, which liens have previously been approved by Fannie Mae and Freddie Mac.
This week, California filed suit in the U.S. District Court against FHFA, Fannie Mae and Freddie Mac, asserting that the position taken by those entities violates the California law that authorizes the PACE programs in the State. Among other things, the lawsuit asks the court to issue an injunction prohibiting Fannie Mae and Freddie Mac from taking action against homeowners with PACE loans secured by their property and to declare that participation in a PACE program does not violate the standards of either mortgage company. According to California Attorney General Jerry Brown, if California loses its PACE programs, the State could lose more than $100 million in federal stimulus money.