BLOG VIEW: The old joke about the left hand not knowing what the right hand is doing seems to be in play when it comes to the Obama administration's pursuit of energy issues. On one hand, the president has made the expansion of renewable energy and the so-called green jobs sector a top domestic issue. On the other hand, the administration appears to be doing everything possible to discourage energy efficiency in real estate finance.
Last month, the Federal Housing Finance Agency (FHFA) threw a monkey wrench into the nation's energy retrofit loan programs, specifically those denominated as Property Assessed Clean Energy (PACE). The FHFA claimed that these programs posed safety and soundness concerns for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, because the first liens established by PACE loans generated significant risk management challenges for lenders, servicers and securities investors. Rather than offer a solution to the problem, the FHFA simply decided to remove the PACE loans from the equation.
The FHFA's decision was fairly astonishing. PACE programs have been in place in 22 states and the District of Columbia, and the program has been seen as a win-win situation in regard to encouraging energy efficiency while spurring job creation within the construction and renewable energy fields. But the damage created by the FHFA has already taken root: Earlier this month, the California Energy Commission responded to the federal agency's action by canceling a $30 million initiative that would have set up PACE programs in 23 counties and 184 cities. Don't be surprised if similar actions pop up in other states.
Reaction to the FHFA's ruling has been swift and negative. California Attorney General Jerry Brown filed a federal suit against the FHFA – and against Fannie Mae and Freddie Mac – stating that the federal entities violated California laws by interfering with municipal programs that allowed homeowners to finance energy retrofits through property taxes – a key component of the PACE program.
On Capitol Hill, a proposed PACE Assessment Protection Act has been introduced in the House of Representatives that would force the FHFA and the government-sponsored enterprises to create underwriting standards that would accommodate PACE-program loans; similar legislation was also introduced in the Senate. Sadly, this situation unfolded after the Dodd-Frank Act was being pasted together – otherwise, some effort could have been made to include PACE program consideration within its 2,300 pages.
Within the administration, it appears no one cares about the chaos created by the FHFA's decision. The New York Times reported that the Department of Energy (DOE) was willing to provide the FHFA with a two-year reserve fund to guarantee against PACE-induced losses, but the offer was turned down. Even more remarkable was another New York Times report that stated that Cathy Zoi, assistant secretary for the DOE's Office of Energy Efficiency and Renewable Energy, was on record as saying that the administration could not persuade the FHFA to accept mortgages carrying PACE liens. The idea that the FHFA is telling the administration how to run the show suggests a greater level of federal dysfunction than previously imagined.
But the lack of enthusiasm within the Obama administration should not come as a surprise. Back in November 2009, I blogged about the White House's curious hands-off policy in regard to the promotion of energy-efficient mortgages. These products would have provided a brilliant overlap between the administration's advocacy of energy efficiency and its desire to save the mortgage banking industry.
Nine months later, the situation has not changed, and it appears that the administration has ignored energy-efficient mortgages completely. For an administration that promised to make energy self-sufficiency and a revitalized housing market its top priorities, it appears that it is either unwilling to keep its promises or unable to recall them.
Hopefully, supporters of the PACE program will force the White House to remember its promises regarding the intelligent deployment of the U.S.' energy resources. The administration's abandonment of this program raises serious questions about its ability to execute effective leadership in areas where it is needed the most.
-Phil Hall, editor, Secondary Marketing Executive
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