PACE Energy-Saving Loans Restricted 

The Federal Housing Finance Agency (FHFA) released guidance on July 6 that severely limits the ability of multifamily properties to use Property Assessed Clean Energy (PACE) loans to finance energy efficiency retrofits of existing buildings. Under the PACE program, participating jurisdictions use municipal bonds proceeds to fund energy upgrade loans to property owners. The loans are repaid through an additional assessment on the borrower’s property tax bill.

As the GSE regulator, FHFA objects to the fact that most PACE debt acquires a senior lien over existing mortgages. The guidance essentially prohibits the GSEs from purchasing mortgages subject to PACE financing. FHFA is also requiring the GSEs to refine their policies for all borrowers in jurisdictions with PACE programs, including adjusting loan-to-value ratios, requiring additional loan covenants and tightening debt-to-income ratios. As a result, most jurisdictions have suspended their PACE initiatives.

Rep. Mike Thompson (D-CA) is pursuing legislation to reverse the FHFA policy, and California has filed a federal lawsuit to overturn it. However, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency have subsequently echoed the concerns raised by FHFA and have issued an alert to banks to mitigate the risks posed by PACE loans.

Given the limitations of the PACE program, Fannie Mae has convened a Green Rental Task Force to better understand existing energy-efficiency programs and to explore new possibilities in green and energy retrofit financing. NAA/NMHC participate in the task force.

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