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FHFA Energy retrofit loan programs need re-examined
WASHINGTON (7/7/10)—The Federal Housing Finance Agency (FHFA) on Tuesday determined that “certain energy retrofit lending programs present significant safety and soundness concerns that must be addressed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks.” The FHFA said that programs that are presented as Property Assessed Clean Energy (PACE) programs, many of which ease the lending process for energy-saving property retrofitting projects, can “pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors.” Credit Union National Association (CUNA) Senior Assistant General Counsel Jeffrey Bloch said that CUNA shares concerns "similar to those expressed by the FHFA." "For credit unions making mortgage loans, these types of energy loans that are paid through the property tax bills adversely affect the lien position of credit unions, and the increased payments can cause repayment problems later, neither of which were contemplated at the time the loans were made," he said. "CUNA is also concerned "that those selling these energy improvements will be concerned primarily with selling the product, as opposed to whether the borrower can afford these higher payments. Although we all can support energy efficiency, these programs can pose risks to credit unions," Bloch added. As explained in The New York Times on July 1, the program works by having local governments issue bonds or borrow money that can then be used for home loans that cover the upfront costs of solar installations or other energy improvements. Homeowners who take part in these loans can then repay them over time through their property-tax bills. As reported in News Now on Tuesday, the U.S. Department of Energy is trying to expand the program, and the Obama administration has tagged $150 million in stimulus money for the program. The FHFA also urged state and local governments to pause and re-evaluate these programs, adding that “the size and duration of PACE loans exceed typical local tax programs” and lack the “traditional community benefits associated with taxing initiatives.” The FHFA directed Fannie, Freddie and the Federal Home Loan Banks to waive their uniform security instrument prohibitions against senior liens and adjust their loan-to-value ratios, loan covenants, and borrower debt-to-income ratios to adapt to the needs of PACE program loans. For the full FHFA release, use the resource link.
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