The FHFA is soliciting comments on a proposed rule that would change underwriting standards for Fannie Mae and Freddie Mac with regard to Property Assessed Clean Energy (PACE) bonds. PACE bonds aim to promote energy efficiency and renewable energy projects for residential and commercial building by providing long-term, low-cost funding from local governments. The proposed rule would require Fannie and Freddie to immediately act to address existing loans with PACE encumbrances while preventing them from both purchasing loans with PACE liens and accepting first-lien PACE obligations on a mortgage.
This proposed rulemaking follows earlier FHFA action to limit Fannie and Freddie’s involvement in the PACE program. In July 2010, FHFA directed the Fannie and Freddie to take “prudential actions to limit their exposure to financial risks associated with first-lien PACE programs.” The agency then prohibited Fannie and Freddie from purchasing loans with these first-lien features in 2011. FHFA was subsequently sued in California District Court and ordered to undertake a formal rulemaking process; FHFA has appealed this ruling. If the appeal is granted, FHFA will withdraw the rulemaking; otherwise comments are due by July 20.
Twenty-five states have enacted legislation authorizing PACE programs. In addition, the PACE Assessment Protection Act of 2011 (H.R. 2599), which would prevent Fannie, Freddie and other federal mortgage lending regulators from adopting policies that contravene established state and local property assessed clean energy laws, has received bipartisan support.
A copy of the notice and information on submitting comments are available at http://1.usa.gov/NM3fYx. Of particular note, FHFA referenced some of NMHC/NAA’s earlier comments on the pre-proposal in the notice. NMHC/NAA’s original comments are available at http://www.nmhc.org/goto/60842.