Status Update – Pilot PACE Financing Programs
The DOE and Obama Administration is making a broad portfolio of investments in energy efficiency to create jobs and help homeowners save money. There are many innovative financing approaches that are already being deployed or under development by grantees, stakeholders, and the Administration that deliver significant energy savings for homeowners without exposing lenders to undue risk. We look forward to working with Recovery Act grantees to develop promising retrofit financing programs that will help consumers across the country, while generating valuable data on the effectiveness of these programs that will help inform future decisions.
What is the status of the Department's Pilot PACE Financing Programs?
Over the past several months, financial regulators including FHFA, FDIC and the OCC have expressed concerns about pilot PACE financing programs. On May 5th, 2010, Fannie Mae and Freddie Mac sent a letter stating that their Uniform Securities Instruments prohibit loans that have a senior lien priority to a mortgage.
In response to these concerns, DOE and Administration officials have met repeatedly with Fannie Mae, Freddie Mac, and the financial regulators as well as PACE stakeholders across the country. In addition, the DOE issued updated guidance for pilot PACE financing programs on May 7th, 2010.
In the course of these meetings, the DOE and Administration has offered commitments to work on new more stringent underwriting criteria, improved consumer protections, and additional measures to significantly reduce the risk and financial exposure to mortgage holders. Despite these efforts, the FHFA issued a statement codifying their concerns on July 6th, 2010. In addition, the banking regulators have made clear that they will oppose any program in which PACE assessments are in the senior lien position (OCC issued a bulletin on July 6th, 2010). This is true even of the limited scope of pilot programs that the DOE had planned to fund.
What is the status of property owners that have already received PACE financing with a senior lien priority given the Fannie Mae and Freddie Mac lender letters and statements from financial regulators?
The DOE and Administration has strongly supported clear reassurances that property owners with existing PACE assessments will not be harmed. The FHFA statement is a major step forward on that issue.
What is the status of Recovery Act grantees intending to use funds to support PACE financing programs with a senior lien priority given the Fannie Mae and Freddie Mac lender letters and statements from financial regulators?
The DOE and Administration continue to support pilot PACE financing programs. Recovery Act grantees are not expressly prohibited from using funds to support viable PACE financing programs, however the practical reality is that residential PACE financing programs with a senior lien priority face substantial implementation challenges in the current regulatory environment. In light of the clear opposition from the regulators for PACE financing programs with a senior lien priority, prudent management of the Recovery Act compels DOE and Recovery Act grantees to consider alternatives to programs in which the PACE assessment is given a senior lien priority.
One such option is PACE assessments that are subordinate to first mortgages. This is a structure that is being piloted in Maine and may offer some promise in other states as well. Along with offering other financing approaches, DOE will work with grantees and other PACE stakeholders to explore whether such an approach is feasible and appropriate in their communities. DOE will work with grantees to establish appropriate criteria and standards for such approaches to PACE financing.
In addition, DOE continues to support Recovery Act grantees to identify promising approaches to retrofit financing, including, but not limited to, the following:
- Loan Loss Reserve Supported Unsecured Revolving Loan Funds
- Qualified Energy Conservation Bonds
(DOE Guidance on Usage of ARRA Funds to Support QECB Issuance is Forthcoming)
- On-Bill Utility Financing Programs
- Commercial Property Assessed Clean Energy (PACE) Primer
(subject to financial regulatory intervention)
DOE will be actively engaging all Recovery Act grantees impacted by the recent developments with pilot PACE financing programs to determine the most effective way to leverage existing or planned program infrastructure to incorporate additional financing tools. However, Recovery Act grantees should feel free to request Technical Assistance through their DOE Project Officer or the following link to the DOE Technical Assistance Center.
DOE will provide further updates and clarification as deemed necessary to assist Recovery Act grantees in implementing effective energy retrofit financing programs.
In the interim, Recovery Act grantees will find helpful resources and background information on additional financing products at the DOE Financial Products Solutions Center.