The Federal Housing Finance Agency (FHFA) has sent to the Federal Register for publication and public comment a notice of proposed rulemaking (NOPR) concerning Property Assessed Clean Energy (PACE) programs.
PACE programs allow property owners to install renewable energy and energy efficiency systems, including solar systems, and repay the costs through property tax assessments spread out over a decade or more.
The FHFA's NOPR was required by a preliminary injunction issued by the Northern District Court of California. The U.S. Court of Appeals for the Ninth Circuit has stayed any obligation required by the preliminary injunction for the FHFA to publish a final rule.
The FHFA, as conservator, has directed Fannie Mae and Freddie Mac not to purchase any mortgage where PACE financing with a priority lien was placed on the underlying property. Such financing moves ahead of the pre-existing first mortgage in lien priority, and thereby subordinates Fannie Mae and Freddie Mac security interests in the property, according to the FHFA.
The FHFA took this action based on its determination that PACE financing arrangements present a safety and soundness concern by transferring financial risks to the regulated entities and lacking in adequate consumer protections and standards for energy retrofitting.
In July 2010, the FHFA issued a statement concluding that PACE loans present ‘significant safety and soundness concerns’ for mortgages held by Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. First liens established by PACE loans are unlike routine tax assessments and pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors, the agency said.
The NOPR seeks comments on the FHFA's proposed rule as well as on potential alternatives. The comment period is 45 days from the June 15 date of publication. The FHFA welcomes comments on all aspects of the NOPR.
The full NOPR is available here.