Renewable Energy-Boosting PACE Financing on Verge of Big Breakthrough

Since its inception, 25x’25 has been dedicated to promoting a renewable energy future that is furthered through advancements in energy efficiency as well as new renewable energy developments. Recent announcements from two federal agencies may launch a major acceleration of residential renewable energy and energy efficiency, further contributing to efforts to reduce greenhouse gas emissions, increase grid resiliency and save consumers money.

Among the executive actions listed last week by the White House to carry out the Clean Energy Savings for All Initiative is a scale up of Property-Assessed Clean Energy (PACE) financing. According to PACENation (an advocacy group) through PACE, home owners work with local contractors to decide which renewable energy, energy efficiency or water conservation measures make sense for their homes. Funding is provided by private sector investors and repaid by each participating home owner as a charge on their property tax bill. PACE is completely voluntary and only impacts home owners who choose to participate.

It’s a funding mechanism that offers homeowners the opportunity to finance solar and energy efficiency improvements at no upfront cost. PACE financing allows homeowners to benefit from energy improvements immediately and pay back the cost over time through their property tax payments. And, by the way, it’s an instrument that Scientific American identifies as one of the top 20 “world changing” ideas of all time.

PACE originated in California more than a decade ago. Since then, PACE-enabling legislation has been passed in 30 states and the District of Columbia, allowing localities to establish PACE financing programs across the country. But most of the PACE projects in those states have been commercial properties.

Securing residential mortgage insurance on PACE properties had for years been nearly impossible because of restrictions on covering property with any mortgage liens other than those held by mortgage lenders. The fear has been that because PACE financing places a lien on the property, those liens could have first repayment priority in case of foreclosure, likely costing taxpayers’ money. The lack of federally backed mortgage insurance has severely stifled the growth of PACE financing.

More than a dozen states have tried to overcome the roadblocks set up by federal insurers. California has proven to be the most successful, setting up a $10 million fund in 2013 that would cover any losses sustained by lenders to properties with PACE liens. However, the surge in foreclosures that federal officials feared would occur with PACE properties never happened. The California fund has not been touched. Meanwhile, according to PACE lender Renovate America, since 2012 California has seen more than 66,000 homeowners make more than $1.5 billion in efficiency improvements through PACE financing, creating more than 13,500 local jobs and generating more than $2.7 billion in local economic activity.

Earlier this month, the Federal Housing Administration (FHA) and the Department of Veterans Affairs ‑ working within with White House’s climate change efforts and now also recognizing the viability of PACE financing for emission reducing solutions like home improvements in efficiency or no-carbon solar power ‑ changed their rules. Given the strong performance of the program to date, the agencies are now backing mortgages for PACE properties, determining that mortgage lenders will retain top repayment priority in the event of a foreclosure. Furthermore, the agencies’ guidance also allows PACE assessments to transfer from one property owner to the next, including those who obtain the property through a foreclosure sale.

Here’s what’s at stake: An economic impact analysis, conducted by the consulting firm ECONorthwest, found that $4 million in PACE funding generates $10 million in gross revenue; $1 million in combined federal, state, and local tax revenue; and 60 clean, green jobs.

Adding to the federal government’s show of support last week for PACE financing, DOE officials released best practice guidelines that will enable more states and communities to adopt and implement residential PACE programs.

Unfortunately, the federal acceptance of PACE financing does not extend entirely across the board. The Federal Housing Finance Agency (FHFA), which guarantees many home mortgages through Fannie Mae and Freddie Mac, still holds to the argument that a PACE lender would have first claim in the event of a foreclosure and won’t back a mortgage on PACE properties.

Given the momentum now at work at the policy level, renewable energy stakeholders are urged to reach out to lawmakers at the federal level and ask them to convince the FHFA to update its approach and back mortgages on PACE properties. Policy leaders in states that still don’t have PACE financing must be called upon to adopt PACE-enabling legislation. And the governing bodies of local jurisdictions in eligible states can be reminded that the adoption of resolution is all that is needed to make their cities and counties eligible for PACE financing. PACE is an idea whose time has come. Help us to embrace its benefits.

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