Supporters of an innovative clean energy financing scheme welcomed a favorable court ruling earlier this month. On August 9, a federal district court judge in California ruled (PDF) that the Federal Housing Finance Agency (FHFA) violated federal law when it decided, without public notice or opportunity for stakeholders to comment, in July 2010, not to underwrite mortgages on homes with property assessed clean energy (PACE) loans.
As I wrote in January, FHFA was concerned that in most states with PACE programs the liens resulting from the PACE loans have priority over mortgages ? the PACE lender would be paid ahead of the bank, or Fannie Mae or Freddie Mac, in the case of foreclosure.
PACE watcher Ethan Elkind, who holds a joint appointment at the UCLA and UC Berkeley law schools, called the ruling a ?decisive win? for the plaintiffs, which includes the California Attorney General?s Office. ?With this decision,? Elkind wrote at the Legal Planet blog, ?the FHFA PACE policy is officially toast until the agency can develop a final rule pending the outcome of an ongoing rulemaking process.?
The public can submit comments (PDF) to inform that rulemaking process until September 13.
?This decision does not clear up the long-term uncertainty around PACE, but it limits the FHFA?s ability to issue a sweeping policy undercutting the program,? said Elkind. ?The final rule (whatever form it takes) will be subject to APA [Administrative Procedure Act] requirements and likely judicial scrutiny.?
The district court ruling does not settle the matter. The FHFA can appeal, and a higher court might need to resolve contrary PACE decisions in New York courts, according to Elkind.
Under the circumstances, he says, ?Local governments may be hesitant to restart their PACE programs until these questions are answered, and they?ve already missed a crucial window to use now-spent stimulus funds to launch them.?
PACE financing enables property owners to take out a loan, usually via city- or state-organized bonds, to pay for energy efficiency upgrades or onsite renewable energy. Loans are repaid, typically over 20 years, through an annual supplemental property tax assessment.
Cooperative solution with the FHFA?
In a recent interview, I spoke with Ygrene Energy Fund President Dan Schaefer about the August 9 court ruling and what comes next for residential PACE programs. Regular readers of this blog will remember the name. I interviewed Schaefer and Ygrene Chairman Dennis Hunter for an April post on the pending launch of Ygrene?s South Florida Green Corridor District PACE program. Ygrene assists local governments in establishing PACE districts for commercial and residential properties.
Supporters of PACE financing welcomed a favorable federal district court ruling delivered on August 9 that boosts the prospects for residential programs. Credit: NREL
?We think that the win in the California [federal district] courts is a real positive step in terms of establishing this asset class and recognizing public benefit as it relates to energy reductions and the need for massive reduction in energy use in the United States,? says Schaefer.
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