Photo:Flickr/Martin Eric
A while back, some creative financing people and San Francisco green energy advocates realized that having easy financing is the best way to sell lots of solar. But not everyone has access to a solar lease or home equity financing these days.
Long story short, they worked with California legislators, and then with Federal government to make way for a new solar and energy efficiency financing program called Property Assessed Clean Energy, or “PACE.”
PACE is a win-win-win financing program for everyone involved, including residential solar water installers and their customers. As such, it became very popular within various states and cities.
And then…it got sideswiped by mortgage financing giants, Fannie Mae and Freddie Mac. More about that in minute. First things first:
What exactly is PACE Financing and why is it so great?
PACE programs differ from state to state, but in the basic model, a city or state government allows private bond companies to create a private bond fund.
- Homeowners that want to go solar (either PV or solar hot water) fill out an application.
- Once approved, the bond fund pays the solar installer.
- The homeowner gets solar and a lien is placed on the home, just like a second mortgage or home equity loan. The only difference is that this lien is actually a city or state tax lien, an important difference, as you’ll see.
- The PACE loan is 20 years, so homeowners get their solar rebate and all other incentives, and they get to break up their low interest loan payment into tiny monthly payments that are smaller than their old utility bill. Nice.
- Besides small monthly payments, another PACE loan advantage is that if the homeowner sells their home before 20 years, no worries. Unlike a bank loan, the PACE loan doesn’t have to be paid off. Instead, it’s automatically transferred to the new homeowner, who benefits from lower gas bills and the solar.
- So, the homeowner is happy because they get solar and save money from day one.
- The state or city is happy because the bond costs taxpayers nothing. It’s completely financed by bond investors, so there’s no little fee on any neighbor’s electric or gas bill to finance PACE bonds.
- The Bond company is happy because their money is secured by a tax lien, meaning, if the homeowner ever defaults, tax liens are guaranteed to be paid even before the mortgage company.
So what’s the problem? Fannie Mae and Freddie Mac are the problem. Ever since the 1980’s this quasi-government agency has financed 80% of the home loans in America. As America’s largest home lender, Fannie/Freddie don’t want to be second in line if the homeowner should ever default.
So upset at being second, Fannie and Freddie said in 2010 that they would invalidate any mortgage that had a PACE loan.
As you can imagine, this brought a very successful solar financing program to a screeching halt. And yet, of the 2,565 homes with PACE loans currently in place around the country, there have been only 2 reported defaults. That’s a .078% default rate—way less than the national average default rate for homes without PACE.
So Fannie and Freddie are worried about nothing. As result, solar advocates have been working very hard to get a fix for Fannie and Freddie through a bipartisan bill in Congress….and you can help!
The bill is called the PACE Assessment Protection Act of 2011. It requires no federal spending, imposes no mandates, and, there is no impact on any neighbor’s taxes or utility bills.
Rather, the new PACE bill requires strict lending protocols, and as further hedge, the bill requires utility savings to from day one. That is, you can’t get a PACE loan just to be green. You actually have to save money off your combined nutility bill and PACE payment.
Now that you know what it is, what can you do? You can go to VoteSolar.com and fill out a little email form. Doing so will tell your elected representative to support and co-sponsor the PACE Protection Act. You could even call your representative and tell him/her to support PACE.
If the bill passes into law, it will (once again) make financing solar hot water easier. So solar installers have a great incentive to not only to fill out the form, but to also pass this blog post and/or Vote Solar’s action initiative on to friends and family on Facebook and Twitter.
Enough reading. Let’s click here now and pick up the pace for PACE. For more detailed info and advocacy materials about PACE, check out this explainer page from Vote Solar.
