After more than a year of stalling, the Federal Housing Finance Agency (FHFA) opened a 60-day public comment period on the future of Property Assessed Clean Energy (PACE) programs in response to a court order in a case challenging FHFA rejection of PACE lending.
In 2010, PACE programs ground to a halt after questions were raised about the program’s long-term financial viability. PACE allowed local governments to finance energy-efficiency and renewable energy improvements to homes and businesses through property-tax assessments. The tax liens created by PACE’s assessments are considered “senior” to other loans, such as mortgages, and must be paid first in the event of a foreclosure.
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To read the Federal Register notice, click here.
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This created a problem with the FHFA, which oversees Fannie Mae and Freddie Mac. FHFA considered PACE assessments to be loans, not assessments, and that they subsequently violated standard mortgage provisions by requiring priority over any other loan, such as a mortgage. FHFA, without public comment or further investigation, abruptly decided to prohibit Fannie and Freddie from underwriting mortgages that contained PACE assessments. The state of California, several local governments and environmental groups, challenged that unilateral decision in court.
The 9th U.S. Circuit Court of Appeals agreed. The process used by the FHFA was flawed. The court ordered the FHFA to open a 60-day Advanced Notice of Public Rule-Making while the case is being appealed. The rule-making asks whether the 2010 FHFA decision to discontinue the program should stand. Comments are due March 26, 2012.
NACo’s policy supports PACE programs and their treatment by federal regulators as a traditional tax assessment program with first lien status.