News and analysis about energy in California with an eye toward renewables.

Feds to Close Comments on Energy Loan Roadblock

Federal mortgage rules have forced a solar installation program to take two years off | Photo: Thomas Galvez/Flickr/Creative Commons License

Californians who've been planning to comment on the Fannie Mae and Freddie Mac's roadblocking of so-called Property-Assisted Clean Energy (PACE) loans had better hurry: the formal comment period on that proposed policy closes Thursday, September 13.

Under a PACE loan program, property owners can borrow money to install renewable energy generation or pay for conservation and efficiency improvements, then pay that loan back over a long period by means of an add-on to the property tax bill. Pioneered in Palm Desert and Berkeley, California, PACE loans proved an effective way to encourage renewables and conserve energy -- until Fannie Mae and Freddie Mac blocked them.

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The two federal mortgage agencies, more formally known as the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation, dealt a serious blow to renewable energy development in the United States in June 2010 when they warned that it might be risky not to underwrite mortgages on properties that had PACE loans attached. The agencies -- which together make up the Federal Housing Finance Agency (FHFA) -- viewed the loans as additional encumbrances on the properties, meaning that it was risky to underwrite mortgages on those properties because they already had debt attached. They turned that view into a proposed formal rule in January.

Advocates of renewable energy pointed out that PACE loans are structured so that participants save more on their utility bills each year than they shell out to repay the loan, which actually meant the properties were less risky to underwrite, as the owners' cash flow actually increased after taking out a PACE loan. 27 states had some form of PACE loan programs in existence when the FHFA made its decision. Those programs have effectively been put on hold. A 2009 study done by researchers at UC Berkeley concluded that wide adoption of PACE programs could pump $280 billion into the economy and reduce the nation's carbon emissions by a billion tons of CO2.

Environmental groups, states, and consumer advocates launched lawsuits against the FHFA. One of those suits, launched by Jerry Brown in his former role as California's Attorney General, charged that FHFA had violated federal environmental and administrative law by not seeking public comment on its policy. That suit, combined with others by California counties and municipalities, and the Sierra Club, resulted in an September 2011 preliminary injunction forcing FHFA to seek public comment on its proposed rule. The comment period had originally been set to end on July 30, but FHFA extended it after outcry from renewable energy activists.

Other PACE suits against FHFA are pending; their outcome will likely depend on FHFA's response to public comments.

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About the Author

Chris Clarke is a natural history writer and environmental journalist currently at work on a book about the Joshua tree. He lives in Joshua Tree.
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