Grist is reporting that the Obama administration has tried and failed to stop Fannie and Freddie from putting up a roadblock to low-cost clean energy financing through PACE programs. Here is my suggestion to make Fannie and Freddie stakeholders, to make PACE a win-win-win-win.
The administration had invested $100 million in PACE program funding, in which municipal local governments can finance long term investments in solar roofs in their communities, by fronting that money; backed by private investment bonds, to just those individual homeowners who choose to put solar on their roofs, and then paying it back with a 25 year property tax assessment on that homeowner’s property, to pay back the private bonds, to pay back the Feds.
It is a pretty safe bet, and a good investment in clean energy which costs every stakeholder nothing in the long run, as it replaces routine energy bills that would have been paid to a utility otherwise.
Each time the house is sold over that 25 year PACE loan, the monthly solar bill is assumed by the new owners, and because the solar roof reduces or eliminates the electric bill, the new owners pay the same or less than they would have for electricity, if they had stayed with their utility.
This is a good deal for sellers and buyers of homes, as lower ongoing utility costs means more money in pockets. It is a good deal for municipalities, because more money in pockets means more money is available to be spent locally. And it is a good deal for the housing market as houses that save you money are an attractive proposition, leading to more sales of these kinds of houses. With lower monthly costs more homeowners are able to afford homes, putting the housing market on a more stable footing.
But Fannie and Freddie appear to be being penny wise/pound foolish in over-reacting to the mortgage crisis.
It appears that officials at Fannie and Freddie do not understand that even if borrowers do default on their mortgages, they’re only responsible for the delinquent payments, not the entire assessed amount going into the future. The new buyers will make payments on the future bills. Delinquent amounts would typically amount to less than $1,000 for about a year of payments on a typical solar installation.
PACE programs already have elaborate safeguards against mortgage default built in. You will likely not get financing through PACE if your mortgage has been paid late, let alone if you are anything close to being underwater or to default in your mortgage.
In most cases, financing may not exceed some low percent of the total assessed value of the property, and even in the most extreme cases, it is difficult to image a scenario where it could exceed a small percent of the total property value; because most homes can be supplied with their energy needs for under ten percent of their value. A shack just cannot support that many solar panels.
Maybe Fannie or Freddie should be eligible for SRECs or carbon credits on all that free solar juice that empty homes would pump out onto the grid, undiluted by usage inside, any time that the house stands empty, between homeowners? Then every stakeholder continues to benefit from this great idea, no matter what happens.
Image: Flikr user mijmonty
Susan Kraemer @Twitter
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