WASHINGTON (Reuters) - Two influential Democratic lawmakers warned on Friday that Fannie Mae and Freddie Mac could derail a $150 million clean-energy home-financing program and urged the Obama administration to rectify the problem with new regulatory guidance.
Rep. Barney Frank, chairman of the U.S. House of Representatives Financial Services Committee, and Rep. Henry Waxman, head of the House Energy and Commerce Committee, said in a letter that the two government-controlled mortgage finance providers have objected to tax liens on homes participating in Property Assessed Clean Energy (PACE) programs.
The programs, part of the $787 billion economic stimulus legislation last year, allow local governments to issue bonds to make loans to homeowners to cover the hefty upfront costs of installing solar panels and making other energy-saving improvements.
The homeowner repays the loan over 20 years through a special property tax assessment, which stays as a lien on the home even if it is sold. The aim is that the tax obligation can be paid off from energy cost savings.
But Fannie and Freddie, which buy mortgages and guarantee those that they securitize, have objected to the municipal liens associated with PACE, saying they constitute a new loan on the property that has senior status to the mortgage — a direct violation of their securitization terms.
Under this logic, if property goes into foreclosure, then the municipal lien would have to be paid off first, before mortgage investors.
“As a result, PACE programs, including many that were funded by the American Recovery and Reinvestment Act, have a questionable status,” Frank and Waxman said in the letter to U.S. Treasury Secretary Timothy Geithner, Energy Secretary Steven Chu and Edward DeMarco, the acting director of the Federal Housing Finance Agency, which oversees Fannie and Freddie.
“We urge you to work together to quickly resolve the uncertainty surrounding PACE programs. It is our hope that your offices can quickly identify, agree on and publish guidelines that would allow PACE financing programs to continue while ensuring that both taxpayer and private mortgage investments are protected.
The lawmakers also asked Geithner, Chu and DeMarco to immediately assure that homeowners who have already installed improvements financed under the programs that they are not in violation of their mortgage agreements.
They requested that the agencies by July 12 provide a timeline and process for resolving the issues.
Reporting by David Lawder; Editing by Gary Hill