Oakland, CA – Today, the White House and Federal Housing Administration (FHA) released statements indicating that they are preparing new Property Assessed Clean Energy (PACE) guidance designed to “remove existing barriers and accelerate the use of PACE financing for single family housing.” The White House Fact Sheet on the initiative may be found here.
PACE allows property owners to voluntarily finance the entire cost of energy efficiency, water efficiency, and renewable energy upgrades to their homes and businesses and then repay those costs as a line item on their property tax bill. The FHA, which insures over 20% of new mortgage originations in the United States, outlined a set of principles associated with their new guidance – including allowing PACE financing to transfer between owners during the sale of the home if the PACE lien can be subordinated during a foreclosure; those guidelines are available here.
In a statement released today, Ed Golding, Head of the FHA, wrote “PACE allows homeowners to benefit from the improvements immediately and spread the cost over time. When the property is sold, the PACE loan may transfer to the next owner who is responsible for repaying the loan. The ability to transfer the loan to the new owner allows for both the payment and the value of the retrofit to be transferred from one owner to the next.”
“Today, PACE became a national clean energy policy priority,” said Cisco DeVries, CEO ofRenew Financial and the inventor of PACE financing. “PACE financing has the ability to dramatically accelerate our transformation to clean energy. Perhaps even more importantly, PACE is an invaluable tool to help homeowners pay for energy upgrades that will reduce their energy costs. However, until now, regulatory uncertainty has limited the expansion of PACE financing for single-family homes.”
The approach outlined by FHA builds directly on the steps taken by Renew Financial, the State of California, and other PACE participants to protect homeowners and mortgage holders through strong consumer protections, careful underwriting, and financial protection for mortgage holders.
The FHA statement builds on the State of California’s PACE reserve fund, which was established in 2014 under the leadership of Governor Jerry Brown. The PACE reserve fund is designed to protect mortgage lenders – including FHA and the Government Supported Entities Fannie Mae and Freddie Mac – in the event of a default on a property with a PACE lien. Since the fund was established, there have been more than 5,000 PACE assessments placed on properties in California without a single claim by a mortgage lender to receive payment for outstanding PACE taxes as a result of a mortgage default.
A limited form of contractual subordination, which does not require a change to PACE law, is consistent with the ongoing discussions with federal officials. Renew Financial’s flagship PACE program, CaliforniaFIRST, is prepared to fully implement this change once the final regulatory guidance is received.
“There are many details that still remain to be worked out and the core components of PACE will need to be protected as federal policy makers move towards final guidelines. Renew Financial and its partners in the industry will continue to be active participants in the process,” added Mr. DeVries. “I first began work on the concept of PACE in 2007. I helped launch the first PACE program in 2008. Over 30 states have now passed PACE legislation across the country and nearly $1 billion in projects have been financed using PACE. This has not always been an easy road, but today is a big victory for PACE and for homeowners across the country.” Read more.