The Mendocino County Board of Supervisors is reviewing a program called PACE – an acronym for Property Assessed Clean Energy. While I am a fan of clean energy, I’m not a fan of this program and here’s why: the way the program is funded threatens lenders, and if lenders don’t lend, the housing market tumbles.
Through PACE, property owners can finance renewable energy upgrades or energy efficiency improvements through a voluntary assessment on their property tax bills. By setting up the repayment of these home improvement loans using property taxes (called a “super priority lien”), lenders who hold the property’s mortgage are bumped to a lower priority.
The three federal giants in the world of lending have said, in essence, if your area adopts the PACE program, we won’t lend there. The Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”), the Federal National Mortgage Association (FNMA or “Fannie Mae”), and the Government National Mortgage Association (GNMA or “Ginnie Mae”) together fund about half of all residential home loans in the United States.
Local lenders sell many of their mortgages to these federal programs. If the federal programs refuse to purchase the mortgages because of the PACE property tax assessments, local lenders are likely to make their lending requirements stricter.
PACE proponents suggest that the value of the home increases by more than the cost of the energy improvements. If that’s the case, why not consider a second deed of trust? Or, have the PACE super priority lien approved by the primary lender. Part of the reason the PACE program wants their loan paid off before other loans is because their loan would be too high a risk if it were behind the original mortgage. For example, if you borrowed $100.00 from someone and then they borrowed $50.00 from another lender and had to pay that money back before your loan, it would make your loan riskier.
Some improvements are very long term, such as thermal pane windows or adding insulation. But others need to be renewed or replaced, often before the new PACE loan would be up (e.g., weatherizing, solar panels, and efficient heating/air conditioning units). Resulting in you, the homeowner, still paying for the loan after some of the benefits are no longer saving you energy costs.
I attended a recent Board of Supervisors meeting, along with several mortgage brokers, banks, and other private lenders. We did our best to educate the County Supervisors about the unintended consequences of the program. To their credit, they setup a task force to review the matter further.
If you’d like more information, attend the Board of Supervisors meeting tomorrow, November 5, 2013. PACE will be on the agenda.
And finally a reminder: if you’re looking for something to do in Ukiah on November 9, the Rotary Club of Ukiah and the South Ukiah Rotary Club are hosting the 3rd Annual Guitars for Troops event at the Redwood Empire Fairgrounds – $10 entry fee with the barbeque at 6:00 pm and the show at 7:00 pm. Local bands play and proceeds are used, in part, to purchase guitars for active service members serving overseas. Tickets are available at the door, or you can buy them from your local Rotarian.
Next time I’ll write about who’s responsible for what – what should a buyer or seller do and what should a real estate agent do? If there’s something you would like me to write about or if you have questions about real estate or property management, feel free to contact me at firstname.lastname@example.org or visit our website at www.realtyworldselzer.com. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.