The idea of PACE is simple. It uses a traditional municipal finance tool to help property owners pay for the upfront cost associated with energy-saving improvements. Property owners then pay for the improvements on their property taxes over the course of up to 20 years. PACE has rapidly gained popularity because it solves a big problem — by eliminating the high upfront cost, it removes the biggest barrier to unlocking significant new investment in clean energy.
But most local governments across the country never got a chance to take advantage of the state PACE laws because Fannie and Freddie stopped them last summer. For the first time in our history, the mortgage giants asserted that PACE assessments aren’t really “assessments,” but “loans.” This is both incorrect and misguided.
First, PACE programs only finance permanent energy improvements to a home or business. As already noted, the repayment obligation always stays with the property, not with the person. Second, Fannie and Freddie are concerned that PACE-financed retrofits will be paid off before the mortgage in the event of a foreclosure, leaving the mortgage giants with a loss. But the fact is the risk of default is extremely low. In fact, PACE programs already in operation around the country found that delinquencies were much lower on PACE homes than non-PACE homes.
It is clear that the benefits of PACE are huge – to homeowners, to the local economy, to the environment, and to the federal, state and local governments. It’s not even a close call. Unfortunately, Fannie and Freddie are attacking state laws that save homeowners money while making their homes more valuable and energy efficient. They have set a dangerous precedent by limiting local governments’ ability to provide benefits to the public.
It’s time for Congress to stop federal over-reach by Fannie and Freddie. The mortgage lending giants should not be able to interfere with local government authority to establish and maintain special assessment districts that serve a valid, important, and valuable public purpose. That’s why we’re introducing the PACE Assessment Protection Act to fix the problem – now.
Rep. Dan Lungren (R-Calif.) is the Chairman of the Committee on House Administration. Rep. Mike Thompson (D-Calif.), a senior member of the House Ways and Means Committee, represents Sonoma County, which has the nation’s largest PACE program. Rep. Nan Hayworth, M.D. (R-N.Y.) serves on the House Financial Services Committee, which oversees Fannie Mae and Freddie Mac.