It has been eight years since Cisco DeVries invented Property Assessed Clean Energy (PACE) loans. They were meant to spur the mass adoption of residential solar, but have also proven to be an effective means of financing other energy and water saving devices. If PACE weren’t classified as a tax, it would have been offered through-out America years ago. Instead, five years ago Fannie Mae and Freddie Mac urged local governments to put their PACE programs on hold and the vast majority of PACE projects have been in California. That is about to change. Cisco DeVries explains how PACE is changing.
How PACE is Giving Preference To Mortgages
PACE is a tax lien on the property. To receive it, homeowners are required to have an assessment made on their property and repay a set portion of the loan every year until it is extinguished.
Being a tax lien, PACE is also senior to any mortgage or private debt there are a lot of places to learn more about mortgages and different options. This made the program very secure for the companies offering the financing. They are guaranteed repayment as long as people pay their taxes and if there is a default, the homes are subject to foreclosure.
“From our perspective, we don’t need any other protection. We don’t need states to play a role, creating PACE bonds or additional PACE financing, because we are already so well protected by the security of the tax receptive,” explained DeVries, CEO of Renew Financial.
He added, “That is why PACE is so powerful. It opens up a whole range of opportunities to owners and has relatively low cost.”
The FHA’s Concerns
However the Federal Housing Authority (FHA) was concerned was that in the case of default, PACE holders are paid out before mortgage holders.
“The reality is that there has never been a foreclosure on a house with a PACE loan. The risk has been mitigated by the excellent way the programs are run, by the success, and by the fact homeowners are getting real improvements to their property that save them money,” said De Vries.
Never-the-less, the possibility of a default exists and in 2010 America’s two National mortgage associations, Fannie Mae and Freddie Mac, issued a statement urging local governments to put their PACE programs on hold. This crippled the residential program’s development outside of California and slowed down adoption within the state.
The Fix In California
Last year, Governor Jerry Brown set up a $10 million fund to cover potential losses to mortgage holders (like Fannie Mae and Freddie Mac). Renewable Funding was involved in this process and sponsored bills AB 1883 and AB 2597, which paved the way.
“We owe a big debt of gratitude to the governor of California for stepping in and getting this approach working. It ensures that mortgage holders do not take a loss. I consider California’s actions to be 90% of the way towards resolution,” said DeVries.
The FHA Finds A Way To Go Forward
“Now the FHA is saying we believe we can allow PACE to go forward. We will allow PACE to be on the homes that we mortgage. We are fine with PACE, but we want to make a change. Instead of the mortgage holder being on the hook, we want PACE financiers like Renew Financial (which operates California First) and Renovate America (which operates Hero PACE) to be on the hook. So in the unlikely event of a foreclosure, mortgage holders get paid first and California’s reserve goes to PACE companies.”
Renovate America is already offering a program that fits these requirements and Renew Financial is ready to launch another as soon as the FHA adopts its new regulations.
Cisco DeVries hopes that states outside of California will adopt a program guaranteeing PACE financiers, so that more companies will be encouraged to step forward.
It is time for America’s PACE program to roll.