Homeowner's Blog

Our Savings are a Little Safer Today

We applaud Congress for passing comprehensive financial services reform legislation. While the legislation is imperfect in the view of most proponents and opponents, until now there has been no new measure in place that would preclude another massive financial meltdown that could have caused another Great Depression. That alone is a significant step forward. It is far better than relying on the memory spans of the small number of senior corporate leaders whose decisions caused the meltdown from preventing its recurrence.

The outcome clearly reaffirms the analogy of the Congressional legislative process to the making of sausage. In the view of many, the legislation does not address all the problem areas. In the view of others much of it is unnecessary and/or harmful. There is probably some truth in both views. Clearly the legislation's effectiveness in many areas will depend on the process of developing the numerous implementing regulations, where the outcomes in each case can range from strong and effective new rules to unintended consequences, and/or a waste of everyone's time.

Based on the history of major reforms, we will probably see some of all three. The legislation will also be revisited many times both to address loopholes and overkill. Both lie in the eyes of the beholders, and will certainly be influenced public opinion regarding financial services sector practices after the regulations have been implemented. Nevertheless there is today less likelihood of a future financial services meltdown than there was yesterday. For that we should be grateful, and thank the sausage makers for all the time and effort they put into the process.

A Disappointing Development

The Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is urging both to avoid participating in the Property Assessed Clean Energy (PACE) program. PACE lets homeowners borrow money from their local governments to finance the high upfront costs of energy-efficient upgrades. Local governments raise the money through the sale municipal bonds, and the homeowner's debt is secured by a lien on the home that is paid off first, before mortgage debt, in case of a foreclosure or bankruptcy. This development is unfortunate because PACE 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.

Nevertheless, the Federal Housing Finance Agency has a point. Sometimes hoped-for energy savings don't fully materialize. Unfortunately 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. It is understandable that the FHFA would not want to subrogate its mortgages to other debts, when many of those energy saving alternatives will leave the homeowner with less money for their mortgage after they have paid their PACE special tax assessment.


Continue reading A Disappointing Development.