Fannie, Freddie clearing refis with energy improvementsSONOMA COUNTY – Threatened with being shut down by mortgage purchasers Fannie Mae and Freddie Mac, Sonoma County’s Property Assessed Clean Energy program SCEIP is finding its way toward a model that could assure its survival, according to Sonoma County Treasurer and Tax Collector Rodney Dole.
The evolving method of operation, which allows Fannie Mae and Freddie Mac to take over the financing without a mortgage-trumping tax lien in place, is working to the advantage of homeowners, buyers and the county tax coffers, he said.
PACE districts are created for the purpose of advancing 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 Sonoma County Energy Independence Program (SCEIP) was the first county-wide PACE district to be formed in the U.S. All other city and county PACE programs have shut down or suspended activities in light of negative guidance from the Federal Housing Finance Agency.
“Although Fannie and Freddie have refused to purchase mortgages with a PACE lien in place, they haven’t objected to appraisals of properties, and appraisals are significantly higher with energy upgrades in place,” said Mr. Dole.
Unless the property is worth less than its mortgage, Fannie and Freddie are willing to take loans in which the assessments are paid off and rolled into the principal.
“Fannie and Freddie get a larger mortgage than they would have without the improvements; home buyers and refinancers pay lower rates; and the county gains the advantage of more property taxes in its coffers,” he said.
About two dozen properties have paid off assessments early and refinanced.
SCEIP crafters didn’t envision this scenario – the original intent was to borrow money at 3 percent, lend it out at 7 percent for a 20-year period, and sell bonds to fill up the well with investment funds.
SCEIP still intends to sell bonds; the difference is the length of time buyers can hold them. With the assessments being paid off more rapidly than expected, SCEIP has become more of a bridge funder than a long-term lender.
“But if the property owners pay our 7 percent for only one year, we’ve made back our money, and we don’t have the processing costs of a long-term holding,” said Mr. Dole.
The bonds may be harder to sell, but he believes they still will represent good value and low risk.
“It’ll be our task to educate bond buyers to a new kind of bond,” he said.
SCEIP has asked the county for and been granted the ability to withdraw $15 million from the county’s pooled investment fund to put toward the purchase of SCEIP bonds to fund applications currently in progress.
Supervisors also approved SCEIP to receive a $3 million grant from the state. Most will go toward implementing the energy audit program and marketing the bonds. The rest will be used to assemble a PACE replication start-up model for residences.