The Mendocino County Board of Supervisors is reviewing a program called PACE an acronym for Property Assessed Clean Energy. While I am a fan of clean energy, I’m not a fan of this program and here’s why: the way the program is funded threatens lenders, and if lenders don’t lend, the housing market tumbles.
Through PACE, property owners can finance renewable energy upgrades or energy efficiency improvements through a voluntary assessment on their property tax bills. By setting up the repayment of these home improvement loans using property taxes (called a “super priority lien”), lenders who hold the property’s mortgage are bumped to a lower priority.
The three federal giants in the world of lending have said, in essence, if your area adopts the PACE program, we won’t lend there. The Federal Home Loan Mortgage Corporation (FHLMC or “Freddie Mac”), the Federal National Mortgage Association (FNMA or “Fannie Mae”), and the Government National Mortgage Association (GNMA or “Ginnie Mae”) together fund about half of all residential home loans in the United States.
Local lenders sell many of their mortgages to these federal programs. If the federal programs refuse to purchase the mortgages because of the PACE property tax assessments, local lenders are likely to make their lending requirements stricter. Read more.