PUTNEY -- An innovative national program that allows property owners to finance energy efficiency projects is in jeopardy after federal mortgage companies questioned whether the program was sustainable.
The Property Assessed Clean Energy, or PACE, program has been put on hold while the states figure out how to respond to a recent comment by a senior mortgage analyst who said home owners who are leveraging parts of their mortgages to pay for the energy projects could be putting the banks that hold the mortgages in jeopardy.
Vermont is one of 22 states that has adopted the PACE program, which was started in Berkeley, Calif., in 2008.
"This is changing so fast that what is happening today may be different in 24 hours," said Peter Adamczyk, energy finance and development manager at the Vermont Energy Investment Corporation, which helps towns start the PACE program. "But it is fair to say that right now, some banks are very nervous and there is tremendous pressure to get some clear answers."
The confusion started earlier this year when officials at Fannie Mae and Freddie Mac said the government-backed home mortgage giants might not finance properties entered into the PACE program.
A letter went out warning lenders that the energy-efficiency liens might prevent the banks from getting their money back if a property goes into foreclosure, which has been happening at unprecedented levels in some regions of the country. Adamczyk said the criticism is off target.
If a home goes into foreclosure, then only a year or two worth of a PACE loan would be lost, and the rest of the loan would be assumed by the new home owner, the same way property taxes are paid year in and year out.
He said the loss would amount to a very small percentage of the mortgage’s total worth, even if a PACE customer defaulted.
Adamczyk also said it was frustrating that Fannie and Freddie have been reluctant to offer clarification, at a time when millions of dollars in stimulus funding is in the pipeline, waiting to be spent on efficiency projects.
"A lot of their fears are overblown," Adamczyk said about the federal tie-up of the energy efficiency program. "We will continue working with towns that have been thinking about this."
The Vermont Legislature included PACE in the Vermont Energy Act of 2009 and the state now allows towns to sign on to the program. If towns want to sign on, voters at town meeting must approve the program.
Five towns have so far approved the program, including Halifax, Putney and Westminster and another 40 or so are considering a vote in November, or next year at town meeting.
Once the program is approved, the town sets up a Clean Energy Assessment District.
The towns administer the loans and provide financing, with the property owners agreeing to a special lien and assessment on their properties.
Members of Congress have been encouraging the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, to clarify the issue.
And with the stimulus money needing to be spent in the coming months, and Congress on break into August, lawmakers are trying to come up with a solution.
Sen. Bernard Sanders, I-Vt., a member of both the energy and environmental committees, is a fan of the PACE program and has been trying to get it back on track.
Sanders joined six other senators in a letter written to Vice President Joe Biden, asking Biden to help resolve the situation.
"As a strong advocate for energy efficiency and sustainable energy, I am pleased Vermont is among the states that is moving forward with programs to help homeowners pay for energy saving improvements in their homes. PACE is a win-win-win because it saves families money on their energy bills, creates local jobs, and reduces greenhouse gas emissions," Sanders said Tuesday. "Recent actions by federal regulators have left Vermont and other states uncertain about the programs. I think the regulators should reconsider."
Rep. Peter Welch, D-Vt, a member of the Committee on Energy and Commerce, signed a letter to President Barack Obama Thursday, urging him to get the PACE program back on track.
"Efficiency retrofits are a great way to put Vermonters to work, cut families’ utility bills and reduce harmful carbon emissions," Welch said in a statement Thursday.
"PACE programs can help break down the barriers that keep homeowners from making these worthwhile investments," he said. "I am hopeful that, in working with federal housing regulators, we can find a swift resolution to this issue."
PACE makes it easier for property owners to finance energy efficiency projects such as solar panels, window upgrades. The projects are funded by taxable municipal bonds, or other municipal debt and are generally repaid over 20 years.
Property owners can apply for up to 15 percent of the assessed value of their homes, up to $30,000.
While Vermont is still relatively new to the national program, other states have been financing energy efficiency projects until the recent confusion.