Clean Energy Loan Programs Clash With Federal Interpretation

Further attention has focused on a recent federal ruling by the Federal Housing Finance Agency disallowing coverage of tax-supported energy loans.

An item on today’s NPR program “Morning Edition” discussed the specific effects on California’s PACE program (“Property Assessed Clean Energy”), where in just one jurisdiction, “Sonoma County has loaned out $30 million for energy improvements to more than 1,000 homes and businesses since the program began a year and a half ago.” According to the radio piece, the federal interpretation greatly impeded these programs:

But the ruling by the Federal Housing Finance Agency — the regulator that oversees Fannie Mae and Freddie Mac — has cast doubt on Sonoma County’s 18-month-old program. Similar PACE programs in 22 other states are also at risk.

Now that Fannie Mae and Freddie Mac have been told by their regulator to steer clear of the program, some contractors, like John Sutter, are being forced to cut back.

“I’d have to lay off about half my workforce of 15 employees right at this time,” Sutter says. “Just at the point we’re actually gearing up to increase our workforce, I’m laying off.”

So what is it about these programs that the FHFA doesn’t like? The primary objection is that in the event of a default, the new tax obligation takes priority over the original mortgage.

Program supporters pooh-pooh that objection, saying that the lender would only have to pay off any back property taxes — a small fraction of the total amount.

As mentioned in previous coverage on Conduit Street:

MACo supported legislation two years ago to authorize local governments to create these programs and continues to advocate for the proper and fair administration of these loans to make the programs more attractive and viable to local governments.

Michael Sanderson

Executive Director Maryland Association of Counties

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