Jul 29 - McClatchy-Tribune Regional News - Ricardo Lopez Pioneer Press, St. Paul, Minn.



Minnesota environmental groups say the Federal Housing Finance Agency has thwarted a heralded loan program designed to help residents pay for energy-saving upgrades to their homes.

In April, the state passed a law allowing local governments to develop a program dubbed PACE -- Property Assessed Clean Energy. At least 16 other states passed similar laws that let residents pay for upgrades such as more-efficient furnaces or solar panel systems with loans paid back through property tax assessments.

The program would create jobs, increase property values and help communities reduce their energy consumption, supporters said.

But to date, no Minnesota city or county has signed on, as a dispute over the program lingers.

 For all their touted benefits, FHFA says, the loans pose a risk to a homeowner's mortgage lender. The agency oversees lending giants Fannie Mae and Freddie Mac and has directed them to avoid approving PACE assessments because they take priority over mortgages should the homeowner default.

"It seems more like a tantrum rather than a reaction to the legislation," said John Farrell, senior researcher for the Institute for Local Self Reliance, which has offices in Minneapolis and Washington, D.C.

The standstill has prompted a letter-writing campaign this week by Minnesota PACE supporters pushing Congress for a quick resolution.

Fannie Mae and Freddie Mac, which guarantee about half the country's mortgages, took a big hit during the

nation's subprime mortgage crisis.

The government-sponsored enterprises lost billions of dollars and have taken about $83 billion in federal aid.

Yet, Minnesota's PACE legislation adopted White House guidelines that had input from lenders. Farrell said he's not sure why Fannie Mae and Freddie Mac would now oppose the programs.

"I think it shows they're not in touch with what's going on at a local level," he said.

Lenders play a role because in most cases, homeowners must get their approval before proceeding with PACE loans.

"FHFA urged state and local governments to reconsider these programs and continues to call for a pause in such programs so concerns can be addressed," the agency said this month in a statement.

It also is calling for tighter borrower debt-to-income ratios, among other tools to block PACE loans.

In a second statement, acting director Edward DeMarco said the agency will "vigorously" defend "its actions to protect taxpayers, Fannie Mae and Freddie Mac."

A spokeswoman said the agency would not comment further on the matter.

"Why they're creating these obstacles, I'm not sure," said state Sen. John Doll, DFL-Burnsville, chief sponsor of the Minnesota bill. "But I do think the issues they bring up are resolved."

The state's effort was designed to protect lenders and consumers, Doll said. It recommended that the cities and counties that signed up require that homeowners cannot be behind on mortgage payments and stipulate a homeowner cannot seek a loan for more than 10 percent of their property's value.

Local governments that take up the program can tailor it to their liking, Doll said. They can set interest rates, determine how much money to set aside for loans and determine who qualifies for financing.

Those governments are waiting for a solution to the current impasse to be brokered at the federal level.

"I'm very supportive of the idea," said Hennepin County Commissioner Peter McLaughlin. He added that if the county adopts the program, it would fine-tune some of the legislation's components.

Dakota County also is considering the program, said Michelle Beeman, Dakota county environment and natural resources director.

Despite variations in PACE programs around the country, the bulk of them are relatively uniform.

Most require an energy auditor to inspect homes and recommend needed retrofits. They also suggest homeowners coordinate PACE loans with other conservation programs, such as energy rebates.

That approach likely would lower the amount of loans issued by the county or city, said Ken Bradley, director of Environment Minnesota, which helped shape the Minnesota legislation.

PACE supporters, such as Doll and Bradley, said they are sending out letters this week urging the state'scongressional delegation to support a PACE fix currently before the U.S. House.

The FHFA is "essentially interfering with a local government's right to specially assess," Bradley said. The bill in Congress would hammer out underwriting standards and assert local governments' rights to implement PACE financing.

The Minnesota initiative, which passed under the umbrella of a larger jobs bill, would spur economic development and put people to work, said Lynn Hinkle, policy development director for Minnesota Solar Industries Energy Association. The group represents solar contractors, installers and manufacturers.

In past years, demand for solar power projects largely depended on energy rebates and federal stimulus tax breaks, Hinkle said. The group says PACE would fuel further demand.

PACE programs have been popular in California and Colorado. In California's Sonoma County, officials have funded energy retrofit projects for about 1,000 homeowners. Fannie Mae and Freddie Mac's decision to oppose PACE has prompted California's attorney general to file a lawsuit against the FHFA.

PACE supporters say they hope Congress will act on federal legislation quickly, and they say they are optimistic.

"We'll see this thing resolved," Doll said. "Hopefully by next year, we'll have this program up."

Ricardo Lopez can be reached at 651-228-5480.

How PACE works

--A city or county issues a loan for energy upgrades. The loan is repaid through a property tax assessment.

--With the loan, a resident can install such upgrades as an efficient furnace or a solar panel system.

--Terms of repayment are set by the city or county; assessments stay with the property.

--For information on PACE programs, go to pacenow.org/blog.

--Read the Federal Housing Finance Agency's statement opposing PACE at fhfa.gov; click under "statements."

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