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October 20, 2010

PACE Lawsuit Update (BerkeleyFirst and GreenFinanceSF Still Suspended)

Posted by Steve Sacks under Energy, Finance, Finance / Mortgages, Government, Green Economy, Incentives and Rebates, Just Plain Cool, Law, Legislation, and Policy, Make Money, Marketing Ideas, Mortgages, Risk Transfer, Save Money, Solar | Tags: , , , , , , , , , , , , , , , , , , , , , , |
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The feud between Fannie Mae, Freddie Mac, and the PACE program is heating up.  I’m going to play devil’s advocate (for a moment), so let me quickly set the stage.  As you will recall, Fannie Mae, Freddie Mac, and their parent entity (following the financial crisis of 2008) the Federal Housing Finance Agency (for convenience, collectively “FHFA”) single-handedly torpedoed the Property Assessed Clean Energy program (PACE), one of the best publicly and privately-funded tools for gaining energy independence.  California immediately sued to stop FHFA from interfering with the programs. (United States District Court For The Northern District Of California, Case 4:10-cv-03270-CW)  According to pacedata.org, five other parties have separately sued the FHFA.  Just last week, the FHFA filed a motion to dismiss the California lawsuit. I am not willing to join FHFA’s motion, but I am also willing to say we can’t just scapegoat FHFA. They are just doing their job.  Perhaps a compromise is in order?

For a copy of California’s lawsuit against the FHFA, click here.

For a copy of FHFA’s recently filed Motion To Dismiss, click here.

FHFA is in charge of protecting the integrity of the housing finance industry, and they have taken on PACE financing because it undermines the integrity of primary mortgages. They have a point, and they can’t just look the other way (as much as it appears they are looking straight into the pockets of big banks).

(See our previous posts on AB 811 backed PACE financing programs such as BerkelyFirst or SFGreenFinance by clicking here).

PACE debt is classified by municipalities as an assessment, and in case of non-payment the PACE debt becomes a tax lien against a home. The issue FHFA have is that in case of foreclosure, tax liens are paid first. That puts the PACE payout in front of a primary mortgage, and that undermines the integrity of the primary mortgage market.  If PACE programs explode in popularity across the nation (as they were prior to the FHFA advisory letter), that’s a big problem for FHFA.  The PACE debt is likely small, but if it is nationwide it is definitely an issue. If FHFA are going to be true to their mission they have to stand up to this (especially since Fannie Mae and Freddie Mac didn’t show sound judgment leading up to the mortgage-backed securities financial crisis).

The sticking point is proponents of PACE financing aren’t interested in making the PACE debt secondary to a primary mortgage.  Recently, California Representative Mike Thompson (and many others) proposed a bill that’s a pretty good compromise, but still asks the FHFA to look the other way on PACE financing.  The devil’s advocate is not sure this is appropriate in situations where private entities finance PACE debt.

HR 5766 requires that:

“the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation [Fannie Mae and Freddie Mac] shall adopt underwriting standards that are consistent with the Guidelines for Pilot PACE Financing Programs issued on May 7, 2010, by the Department of Energy.”

The DOE guidelines referred to in HR 5766 state:

“In states where non-acceleration of the lien is standard for other special assessments, it should also be standard for PACE assessments. After a foreclosure, the successor owners are responsible for future assessment payments. Non-acceleration is an important mortgage holder protection because liability for the assessment in foreclosure is limited to any amount in arrears at the time; the total outstanding assessed amount is not due in full.” (Full Guidelines Here)

The DOE guideline quoted above states that under a PACE program in a state where under foreclosure proceedings a primary mortgage holder can demand payment for the full amount of the debt, PACE assessments can only ask for the debt that was owed up to the time of the foreclosure.  This is an important distinction.  The problem is that the PACE lien still supersedes the primary mortgage to some degree.

I doubt this would be such a problem if municipalities provided all of the financing for PACE programs. Municipalities will always have the power to impose assessments.  The problem is that often PACE financing is provided by private enterprise.  Further, with the municipal budgets in pieces, the likelihood of private finance for PACE programs only increases.  I am all for PACE programs, but allowing a private entity to supersede a primary mortgage without asking the primary lender seems a little, shall we say, inconsistent (even if the motives are pure).

For my return from the devil’s side of the argument, and some suggestions for solutions, click the “more” link here:  (more…)

 

July 19, 2010

California Sues Federal Government! BerkeleyFirst and GreenFinanceSF In Jeopardy

Posted by Steve Sacks under Energy, Finance, Finance / Mortgages, Government, Green Economy, Incentives and Rebates, Just Plain Wrong, Law, Legislation, and Policy, Mortgages, Risk Transfer | Tags: , , , , , , , , , , , , , , , |
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The local California programs that allow homeowners to pay for green renovations through an added assessment on their property taxes is in jeopardy.  The BerkeleyFirst program – the first Property Assessed Clean Energy (PACE) program in the nation, is still up and running, but San Francisco suspended the GreenFinanceSF program, and Sonoma County now sends warning letters out with every application.  Mind you, 22 states now have PACE programs (enabled in California by AB 811), and President Obama wants to allocate $150 million in federal funds for these programs.  Someone in his office better call the Federal Housing Finance Agency (FHFA), because they don’t like the programs one bit.

The issues started when Fannie Mae and Freddie Mac sent out a letter in the beginning of May that scared some investors and homeowners because it stated, “an energy-related lien [i.e. PACE loan] may not be senior to any mortgage delivered to Freddie Mac.”  Then, at the beginning of this month, the FHFA (who oversee Fannie and Freddy) stated that the PACE loans pose a risk to lenders, and called for the programs to be stopped.  Last week, California shot back and sued the Federal Government to have the FHFA back PACE programs.

FHFA’s concern is that if a property goes into foreclosure, property taxes are the first debts paid off.  Since the PACE loans are an assessment included in property taxes, the PACE loans would be paid off first in a foreclosure.  Almost universally, a primary mortgage is paid off before any subsequent loans taken on a property.  The PACE loans throw that fundamental rule out the window.  This allegedly adds risk to the primary mortgage, and since Fannie and Freddie are the largest purchasers of mortgages in the nation, they object.

To make matters worse, a New York Times article reports that Fannie and Freddy might not accept mortgages with PACE loans.  Fannie and Freddy turning down mortgages is huge.  The two entities own nearly 50% of the mortgages in the nation, and banks rely on the ability to sell mortgages in bulk to Fannie and Freddie.  If PACE loans make mortgages less valuable in the mortgage market (the banking market that bundles groups of mortgages and sells them wholesale between banks and investors . . .e.g. “mortgage-backed securities”), that will essentially end the programs.

I understand the FHFA point of view, but I think their concerns are overblown. The improvements to the property add value, and the PACE payments are generally very small. A $25,000 loan at 6.5% over 20 years comes to about $185 / month.  If you consider the savings to the owner’s energy bill, are we really talking about a debt obligation that will jeopardize someone’s mortgage payment?  Indeed, what if the local government just increased taxes outright?

The PACE programs are gaining tremendous momentum, creating jobs, and leading us toward energy independence.  Throwing a wrench in the system over something quite small is not only counter-productive, its subversion.  We’ll track this issue closely, and let you know of further developments.

More on the lawsuit from Sustainable Business here

More on the lawsuit from the San Francisco Chronicle here

The CGBB first post on BerkeleyFirst is here

 

May 19, 2009

A Solar Solution to the Economy*

Posted by kevinjeong under Carbon, Energy, Finance, Finance / Mortgages, Green Economy, Incentives and Rebates, Law, Legislation, and Policy, Mortgages, Save Money | Tags: , , , , |
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Everyone seems to have a “solution” to the economic problem these days.  One attorney, perhaps a little self-servingly (and rightfully so), implores the government to forgive student loan debt to stimulate the economy. (Click here)   A group of Ohio University students continue with the decades-old mantra that America must protect its economic interest through restrictions on free trade.  (Click here)  While I am able to easily dismiss these solutions as fanciful ideas–more idealistic than pragmatic–there is one recent solution that has caught my attention.

A recent Forbes article written by an ex-Lehman Brothers VP raises an interesting solution to solving the ever-increasing foreclosure problem: subsidizing solar panels for distressed homeowners.  In his article, Robert Luty states that the government has already launched over a trillion dollars in spending programs designed to help distressed homeowners and banks.  His solution would, in his words, “help possibly a million homeowners, unleash strengthened bank capital for new lending and increase gross domestic product with the same solution and at the same time.”  In addition, it “could also make a significant advance in the country’s renewable energy goals in the process.”  Now imagine all of this, with the same trillion dollars the government is already spending.  Talk about teaching a person to fish!

At first glance, I was ready to throw this solution into the “it’s a great idea, but . . .” pile.  However, I decided to read on.  After all, here was a Wharton-educated Wall Street capitalist writing in favor of tree-hugging green technology.

Luty throws some fancy numbers and finance terms around, but the gist of his proposed solution is this:

Imagine an average homeowner who purchases a house in 2006 that loses 25% of its value.  Add to that lost household income of about 20%.  This puts the household’s debt-to-income (DTI) ratio at about 47% (ah, the good old days when your mortgage comprised only 20% of your income).  

Now, he roughly calculates a solar photovoltaic (PV) system would cost about 10% of the home value and generate 100% of the household energy needs.  The total cost of the solar PV system would be subsidized by the government of course.  In return, the homeowner would no longer be subject to increasing energy costs and the value of the solar PV system (both in terms of current energy savings and future potential) would bring the value of the house almost back to its pre-crisis value.  As a result, the homeowner would be able to refinance the home with current low interest rates and lower his or her DTI to the desired 31%.  

Yes, I had some trouble following the logic of a finance guru, but to put it in laymen terms:  (1) create value and equity by adding government-subsidized solar power to the home, (2) refinance the now “detoxified” asset, (3) save money, (4) produce clean energy, and (5) help the environment.  It seems like a win-win situation.

And yet, being the proverbial Chicken Little, I can’t help but be a bit skeptical and pessimistic at this overly-simplistic solution.  As a colleague of mine stated, “People won’t buy into this.  It’s like rewarding irresponsible individuals for overextending themselves.”  Maybe so, but isn’t the government already doing that for the same homeowners and banks?

(Click here for the full article)

* The author of this post is in no way advocating Luty’s proposal.  Rather this post is meant to be a simple observation on how green technology can possibly be an economically viable solution.

 

April 4, 2009

Homebuyer’s Tax Credit …Need I Say More

Posted by Steve Sacks under Finance, Incentives and Rebates, Just Plain Cool, Law, Legislation, and Policy, Marketing Ideas, Mortgages, Save Money | Tags: , , |
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According to state Franchise Tax Board, the applications for the $10,000 state tax credit for new home buyers has generated 2,624 applications in the first 28 days!

Get more information on the tax credit here 

The Sacramento Bee, reports:

“The credit, estimated to benefit about 10,000 homebuyers statewide this year, offers up to $3,333 off state taxes for each of the first three years after buying. First-time and move-up buyers alike are eligible, and there are no income limits. The state credit can also be combined with a new $8,000 federal tax credit for first-time buyers”

As mentioned above, applications are flooding in.  The allocation for the credit will likely be consumed by the middle of the summer. So, if you’re in the market, or know someone who is, grab it now.

 

January 8, 2009

Energy Efficient Mortgages Are A Big Win For Developers, Contractors, And Homeowners!

Posted by Steve Sacks under Energy, Finance, Incentives and Rebates, Make Money, Marketing Ideas, Mortgages, Save Money | Tags: , , , , , |
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Energy Efficient Mortgagaes (EEMs) or Energy Improvement Mortgages (EIMs)are special mortgages that give home purchasers or  home owners the option of purchasing a more expensive home with green features or installing energy efficient technology in a current home.  Lenders allow borrowers to borrow more money than they would otherwise permit because the savings in energy costs can be used to pay the added amount due on a note.

Some EEMs or EIMs have lower interest rates and lower down payment requirements.

The US Dept. of Housing and Urban Development has a great page explaining the logic.  (Click Here).  This is the basic analysis provided on their web page:

                                    Older                Same Home with
                                    existing home     energy improvements

Home price                        $ 150,000             $ 154,816
(90% mortgage, 8% interest)

Loan amount                      $ 135,000             $ 139,334

Monthly payment*               $      991            $     1,023

Energy bills                      + $      186        +  $         93

The true monthly

cost of home ownership        $   1,177               $   1,116

Monthly savings                                       -    $        61

Developers can use EEMs as a marketing tool to show how purchasers can actually SAVE money on their mortgage payment if they buy a more expensive home!  Contractors can make the same argument for home improvement projects.

California has helpful information on their “Flex Your Power” website (Click Here).

The Residential Energy Services Network also has lots of excellent information for home owners including information about EEMs and EIMs (Click Here).

 

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