Homeowner's Blog

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.


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