Improving one's home energy efficiency is a good idea. It provides utility cost savings, reduces pollution and fossil fuel dependency and often increases individual property value. But who should pay for it? The simple answer, of course, is the homeowner. Introduce federal tax credits, government loans, special property tax assessments funded by municipal bonds and PACE (Property Assessed Clean Energy) liens that get paid before mortgage debt, and the answer becomes far more complex.
According to today's Wall Street Journal, "The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac ... which were taken over by the government nearly two years ago ... , suggested [yesterday] the mortgage finance titans should avoid participating in the [PACE] program or should tighten their lending standards ...[as] the program posed significant risks to mortgage lenders and investors." Excellent advice all around? Especially when considering "The Treasury has injected $145 billion into [Fan & Fred] to keep them afloat." Maybe, but if the PACE initiatives are a liability to value, why are they installed?
One the biggest ironies is "As privately-run companies, the companies could have decided long ago not to purchase loans with PACE liens. But as wards of the state, the companies can't lobby or take positions on public policy and instead it fell to their regulator to handle the matter", according to the Journal. And the issue became even more convoluted when "in May, Fannie and Freddie said the liens violated the terms of their contracts to purchase loans from lenders and said they would require borrowers to pay off the liens before refinancing or selling their properties." Only to have "the Federal Housing Finance Agency direct Freddie and Fannie [yesterday] to let participating borrowers keep their liens without penalty [while also instructing F & F] to resolve the problems created by a first-lien loan ... [and] To do that, mortgage giants could require municipalities to have borrowers seek permission from lenders on each lien." The Journal also claims that these development are "a setback to the Department of Energy ...[and mark] a rare instance in which Fannie and Freddie, through their regulator, have refused to adopt a policy directive from the Obama administration."
There may, however, be a silver lining in this debacle. As Bruce Hahn, President of the American Homeowners Grassroots Alliance, writes in a comment to the article: "This development is unfortunate because it helps both homeowners and lenders. To the extent that home energy costs are reduced, homeowners have more money remaining to pay their mortgage. That in turn reduces the likelihood that homeowners will default on their mortgage payments." And yes, as Bruce points out, "some energy saving investments, such as solar panels, return far less in energy savings per dollar of investment compared to other alternatives, such as adding insulation to older homes that have little or none." So going forward, if energy saving initiatives marketed by their providers offer a positive ROI and a homeowner can afford them -- or has sufficient existing equity -- , why not allow the market place to do its job and let the Feds focus on more pressing matters.