Pitkin County Energy Smart Update: August 24th, 2010
Due to recent decisions made at the federal level that have an immediate and detrimental impact on Property-Assessed Clean Energy (PACE) programs, Pitkin County has been forced to put the Energy Smart Program on an indefinite hold.
The County is extremely disappointed by the lack of flexibility and vision that has been encountered with the FHFA and with Fannie Mae and Freddie Mac, and will continue to work with our local Congressional members as well as other stakeholders around the country to try to resolve these issues as quickly as possible. Initially, PACE communities hoped to get this issue resolved within a few weeks of receiving notice of this new policy. However, it now appears that it will take several months before any kind of agreeable solution can be reached.
On November 3rd, the Pitkin County electorate overwhelmingly approved Referendum 1A, which authorized County debt for the Energy Smart Program in the amount of $7 million. Additionally, identical measures passed in Eagle and Gunnison Counties (at $10 million and $3 million respectively). Because of this, the three counties have been working to create a regional Energy Smart Program for the purpose of financing energy efficiency and renewable improvements on properties within the three counties. The repayment mechanism for these improvements would be through special assessment on the property to be repaid over a 15 year term as part of the owner’s property tax payment.
However, in early May, the expansion of PACE programs among state and local governments came to an abrupt end. Fannie Mae and Freddie Mac (who are overseen by the Federal Housing Finance Agency, or FHFA) issued brief letters that suggested PACE violated standard mortgage provisions. In early July, the FHFA reinforced the Fannie/Freddie letters with a statement regarding PACE, cautioning that lenders and taxpayers faced “significant” risk from PACE assessments. The regulators concluded that property owners that participate in senior-lien residential PACE programs will violate standard mortgage provisions and trigger a mortgage default. In addition, the FHFA instructed Fannie and Freddie to use more restrictive mortgage underwriting standards for all borrowers in jurisdictions with PACE programs. Those warnings, coming from the issuers or holders of over three quarters of the nation’s residential mortgages, froze, and have now begun reversing, the rapid expansion of PACE programs around the country.
Recent Developments and Possible Outcomes
Since the July 6th FHFA letter, significant pressure has been exerted upon the financial regulators to find a solution to the PACE impasse. Several legal challenges, from the Attorney General of California, Sonoma County, Babylon NY, and the Sierra Club, have been filed. Bills in both the Senate and the House have been introduced in order to restrict FHFA’s ability to alter underwriting standards within PACE communities. Additionally, FHFA, along with members of congress, have reengaged in discussions about possible options for moving PACE programs forward in a manner that works for both the local governments and the financial regulators.
Although, a tremendous amount of uncertainty surrounds PACE programs, these actions could lead to future resolution:
· A federal judge may find any of the lawsuits sufficiently compelling and prohibit FHFA from discouraging mortgages on PACE properties.
· Congress may find a legislative solution which would eliminate FHFA’s ability to alter underwriting standards within PACE communities.
· The Administration may successfully reach an interagency solution that provides sufficient assurances to mortgage lenders and regulators.
While Pitkin County continues to move towards resolution on the PACE issues in order to facilitate a future launch of the Energy Smart Program, several “bridge” financing scenarios are in the works.
- Private Bank Financing Products: The County is working to identify all existing loan products for energy improvements and determine if new loan products could be developed with the assistance of State and Federal grant opportunities.
- Non-Fannie/Freddie Properties: A potential opportunity exists to move forward with PACE financing on non-conforming mortgages, those not held to Fannie/Freddie underwriting standards, or properties without an existing mortgage.
- Commercial Energy Smart Program: County staff is currently exploring the potential of launching a PACE program for commercial properties. Commercial mortgages are not subject to FHFA guidelines, and there is a possibility that the federal restrictions would not impact commercial PACE programs.
As Pitkin County and local partners make progress in these areas, additional information will be provided to the public. Additionally, the County will work diligently to keep our community apprised of any movement with PACE at the federal level. We ask for your continued patience as we seek additional financing options and work to reinstate PACE in our community.
If you have any questions, comments, suggestions, etc., please do not hesitate to contact the County:
Energy Program Manager
76 Service Center Road
Aspen, CO 81611
Lawrence Berkeley National Lab White Paper: