Page 63 - Green Builder Magazine Nov-Dec 2017 Issue

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CODE ARENA

The Latest Rules, Regulations and Codes Impacting Sustainable Construction net positive effect on the resale value of homes. by a tax or assessment enjoy a first lien position and, therefore, have
PACE programs aren’t just limited to residential or commercial or
priority in receiving proceeds in the event of a foreclosure. A PACE
projects. Industrial, non-profit and agricultural properties can also be loan would be fully satisfied before the FHA mortgage.”
eligible. And the retrofits aren’t restricted to energy. Windproofing, We’re almost three years removed from the FHFA prohibiting
seismic retrofits, water conservation upgrades and septic tank Fannie Mae and Freddie Mac from purchasing or refinancing a
improvements can qualify for financing. In that light, PACE doesn’t mortgage with an existing first lien PACE loan. And therein lies
just help protect the environment, it also creates jobs and promotes why the federal government continues to hound what is otherwise
local economic development. a state- and county-level program: the involvement of Fannie and
PACE financing originated in California in 2008, but it initially Freddie in so many loans.
struggled to gain traction. The Federal Housing Finance Agency However, the THUD appropriations bill does make an unjust
(FHFA) almost eliminated it in 2010, but the lending mechanism implication. It reads: “FHA’s subordinate position increases the risk
managed to survive and even started to thrive. By the end of 2010, of loss to the Mutual Mortgage Insurance (MMI) fund and by extension,
24 states and the District of Columbia had passed PACE legislation. taxpayers. The Committee notes that the MMI fund was forced to
To help ensure the viability of PACE programs, the PACE Assessment draw $1.7 billion from the U.S. Treasury just four years ago to cover
Protection Act (also known as HR 4285) was introduced in the House projected losses on loans it guarantees, and just reached its statutory
of Representatives in 2014, but it never went further than a referral capital reserve level just two years ago.”
to the House Committee on Financial Services. That is certainly a lot of money, especially if you’re projected to
lose it. However, by including this statistic in this section of the
REAL PACE THREATS bill, it implies that the 10-figure loss is due to PACE financing. No
Even though PACE has never received much love from Congress, evidence is ever given to support that implication. And for the sake
it doesn’t necessarily need it. Because it is a form of a lien, PACE of context, it should be noted that in the current appropriations
must be enabled at the state and county levels, which makes it a bill, the Committee is recommending a limitation of $400 billion on
very local decision. To that end, there are now 30 states and the loan guarantees in the aforementioned MMI program account. So,
District of Columbia that have approved commercial PACE financing, if the MMI program were to lose $1.7 billion in FY2018, that would
and 16 states and D.C. that have passed residential PACE legislation. represent 0.4 percent of all loan guarantees.
It should be noted that only 13 states and D.C. have active PACE To put that in perspective, the S&P/Experian First Mortgage Default
programs, and only three of those states (California, Missouri and Index is at 0.66 percent. And when you take into consideration all
Florida) utilize it for residential purposes. loans, the Federal Reserve reports that the delinquency rate for all
Unfortunately, it seems PACE financing is coming under attack from real estate loans was at 2.28 percent for Q2 2017. The MMI program
the federal government once again. HB 1958, a bipartisan bill cleverly would be outperforming the market, while fostering sustainability
titled “Protecting Americans from Credit Entanglement” (PACE) Act improvements, which also lower societal/governmental costs.
of 2017, was introduced in early April. Not long after, a companion Since Congress is struggling to pass legislation, this may all be
bill with the same name wasintroduced by four Republican Senators for naught. But the House has passed a $4 trillion budget, so the
in mid-May. The intent of this legislation is to require PACE to meet legislative logjam might be loosening. Both of the aforementioned
the requirements of the Truth in Lending Act (TILA). bills are 5-6 months old and still sitting in Committee, but for those in
We probably all agree that protecting consumers against fraud the home performance industry, this is a topic worth monitoring. GB
is a good thing, especially in the wake of recent shenanigans in the
financial world. However, lawyers for Renew Financial believe that Mike Collignon is the executive director and co-founder of the
the legislation would characterize home performance contractors Green Builder Coalition.
as “selling” PACE financing, and would therefore have to become ■ ■ “PACE Loans: Does Sale Value Reflect Improvements?”,
licensed mortgage brokers. If the legislation were to pass and if that Journal of Structured Finance, http://bit.ly/2z2WApf
interpretation were to hold true (two big ifs), few (if any) contractors ■ ■ PACE Assessment Protection Act (HR 4285), http://bit.ly/2z011RP
would obtain broker’s licenses. ■ ■ House FY2018 Transportation and Housing and Urban
The other threat to the future of PACE is the House FY2018 Development bill, http://bit.ly/2A0xsxB
Transportation and Housing and Urban Development appropriations
bill (http://bit.ly/2gTtVwl). The bill contains language that could
severely hamper the future of PACE: “The Committee includes bill COURTESY OF
language prohibiting funds from being used to purchase, guarantee The Green Builder Coalition

or insure any mortgage on properties that have a PACE loan in a first
lien position—superior to the FHA loan.” The Green BuilderCoalition is a not-for-profit association dedicated to
amplifying the voice of green builders and professionals, driving
The first lien issue has always been the Achilles heel of PACE advocacy and education for more sustainable homebuilding
financing. That’s why this lending mechanism has drawn the practices. For more information, visit GreenBuilderCoalition.org
ire of the Mortgage Bankers Association and Realtor groups. It’s
understandable why lenders would be upset with a secondary loan For more information, contact Executive Director
having higher repayment priority. As the bill states: “Loans repaid Mike Collignon at mcollignon@greenbuildercoalition.org.

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