Advocates for property-assessed clean energy (PACE) financing have long argued that the public works–style assessments used for green home retrofits can actually bolster the home mortgage market, not undermine it.
Now they have some numbers to back up their claims—and a new bill, introduced in Congress on Wednesday, July 20, aimed at removing the year-long federal stranglehold on PACE programs.
The numbers show a 0.1 percent default rate, or a total of 2 defaults, for the more than 2,500 homes with PACE assessments in Palm Desert and Sonoma County, California; Boulder, Colorado; and Babylon, New York—the three cities and one county with current or recently active PACE programs.
That is 1/30th of the 3.2 percent average for defaults on non-PACE homes in Sonoma and the other three counties where the residential PACE programs are located, says David Gabrielson, executive director of PACE Now, the advocacy group that put the figures together.
“You would expect 80 to 90 [defaults],” he says. “PACE has the potential to reduce defaults because it puts money back into homeowners’ pockets.”
The default comparisons, along with figures on PACE’s potential to create jobs and revenues for state and federal coffers, will likely be the centerpiece of the campaign for the PACE Assessment Protection Act of 2011.
Key provisions of the bill include the following:
- A requirement that the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and the Office of the Comptroller of the Currency all rescind their 2010 directives advising banks not to issue mortgages or other financing for any properties with PACE liens.
- Validation of PACE financing programs as assessments that, like other local government public works assessments, have a senior position in the event of defaults. The senior-position issue triggered the directives from the federal agencies, which argued that PACE financing programs could destabilize residential and commercial mortgage markets and are really loans, not liens.
- Stronger underwriting provisions for homeowners seeking PACE financing, to reduce risk for Fannie, Freddie, and other banks. While still not requiring credit checks, the new standards would ensure that homeowners applying for PACE programs have at least 15 percent positive equity in their homes and are current with all property tax payments.
- Assessments also would be limited to 10 percent of the appraised value of a property and would need to pencil out to show that projects create a positive cash flow for homeowners or at least pay for themselves.
Unlike a similar, unsuccessful effort last year, this bill is starting out with bipartisan support. Rep. Mike Thompson (D-Sonoma), who carried the legislation last year, is back as a sponsor, now joined by Rep. Nan Hayworth (R-Mount Kisco) and Rep. Dan Lungren (R-Sacramento).
“If you’re looking for a bipartisan, bicoastal effort to deal with the challenges of the economy, this is a win-win-win,” Lungren said during a telephone press conference with Hayworth and Thompson on Wednesday. “It’s hard to figure out why someone would be opposed to this. It essentially allows those who own property and have equity in the property to achieve something we want them to achieve -- to be more energy efficient sooner rather than later.”
An e-mail from FHFA spokeswoman Corinne Russell says that the agency “continues to have concerns with the first lien created by certain PACE programs and the absence of effective consumer protections. We will work with members of Congress on the particulars of any legislation.”
Jeff Kingsbury, chairman of the Urban Land Institute’s Sustainable Development Council, sees the bipartisan effort to reestablish PACE as “incredibly important” for developers navigating today’s growing market for adaptive use, brownfield, and similar types of projects.
“We’ve got a situation where in most markets we have excess supply. That’s going to favor existing real estate as opposed to new construction,” he says. “PACE gives state and local governments another tool in their redevelopment tool box to provide the private sector and local governments an opportunity to address those realities in a way that generates economic benefits without federal subsidies, mandates, or new federal programs.
“We need more of these types of programs that allow local governments to be creative with the private sector.”
Gabrielson notes that of the 27 states that have passed some kind of PACE legislation since 2008, eight have Republican-controlled legislatures, and the program plays well to cash-strapped local governments.
A study commissioned by PACE Now projects that an average PACE assessment of $20,000 per home would generate about $60,000 in direct and indirect economic activity, including $3,500 in federal taxes and $2,400 for state and local governments.
The current political standoff over budget and debt issues notwithstanding, Hayworth, Lungren and Thompson said Wednesday they are already working the floor in the House to sign up more sponsors for the bill, with the goal of having it passed by the end of the year.
“Part of our job is educating our colleagues,” Hayworth said. “It’s not easy to get three members of Congress, two from California, one from New York to agree on anything.”
A draft of the PACE bill is available online.
