But cloud remains over lending programs; legal challenges ongoing

SONOMA COUNTY – The Federal Housing Finance Agency has withdrawn its threat to consider early participants in the Sonoma County Energy Independence Program in default of mortgages if a real estate tax lien is in place. But the future is cloudy for Fannie Mae and Freddie Mac borrowers who entered, or seek to enter, the program after July 6.

A letter sent on Aug. 31 to local banks from Freddie Mac, one of the main insurers of mortgages, outlines a program allowing home and business owners with a property assessed clean energy (PACE) loan to refinance by rolling it into a new mortgage from Freddie Mac.

To qualify, borrowers must have sufficient equity to pay off the existing PACE obligations.

“It almost looks like a land-grab,” said County Treasurer and Tax Collector Rodney Dole, who was instrumental in the creation of the Sonoma County Energy Independence Program that pioneered the loans.

Freddie Mac’s rates are lower than participating banks, he noted: 4.5 percent to 5 percent, while banks generally charge a higher percentage.

“They complain about the safety of the program, but then they offer to skim off the top borrowers. It’s illogical,” said Mr. Dole.

“Even if the homeowner has sufficient equity to pay the lien, they refuse to insure the re-fi or mortgage unless it becomes theirs.”

For borrowers whose PACE or pilot PACE loans were established after July, there is no guidance. Freddie Mac stated that it will not purchase mortgages with PACE loans.

But the letter does alleviate fears that  sellers with a lien still in place when the property was refinanced would be determined to be in default.

“They never used the word ‘default,’ and that’s good news,” said Mr. Dole.

Sonoma County’s pilot program, hoped by many to lead the way for PACE programs all around the country, has not been suspended, like all similar programs around the state, but its future is in doubt.

Administrated by assessment districts created for the purpose, the programs advance funds for the installation of energy-saving upgrades to homes and businesses, allowing property owners to pay off the upgrade costs gradually through assessments to their property tax.

The FHFA reiterated in a letter that the creation of a lien superior to an existing mortgage poses a threat to the safe and sound operations of its regulated entities.

“The FHFA, therefore, has determined that its guidance in its regulated entities must remain in  place,” stated FHFA acting director Edward DeMarco.

“We will continue to work with alternative lending structures … that do not pose the risks of the PACE programs with first liens,” the letter said.

“This is a clear effort to shut down PACE programs in general and SCEIP in particular,” said Mr. Dole.

The county has sued Fannie Mae and Freddie Mac over the matter, as has the attorney general’s office of California and the Sierra Club.

“We’re getting support from other entities, too. But we don’t want to let the issue fade away. There are jobs at stake,” he said.

Sonoma County has already disbursed nearly $35 million as part of the program, with requests for about $2 million more in the application process. Half a dozen new solar installers have started up or opened branches in the county as a result of the program.