Did Freddie and Fannie get it right for the wrong reasons? Is Pace Financing DOA or is it how we look at it?
So Boo-Hoo to all those people who were anticipating lots of green energy financing through a mechanism called Property Assessed Clean Energy Financing or PACE. The superiority of municipal tax liens over a mortgage lien is and will remain a common occurrence and with some tweaking may still be the model for PACE. PACE still has plentyof legs to stand on but people wanting to use this form of financing may have to be in it for the long haul.
I will remain a fan of PACE, but I think like Freddie and Fannie got it right but for the wrong reasons. And here is why. Once a property owner elects to put renewable energy and or fix up with energy efficiency upgrades there is a fundamental increase in fair market value to the home. Some of these PACE financed components are black-and-white, like a solar water heaters or solar photovoltaic system. After this though, the fix ups become generic to the house and are very difficult for third parties, like appraisers or even the buyer to separate upgrades from a normal components of the home. Most of these fix ups are things that conscientious homeowners can and should do without a lot of hand holding from state and local governments. A paint job, some insulation and a new air-conditioning system should not be rolled into a secondary long-term PACE loan. How we deal with these fix up costs, who’s really paying for them and how it plays out when the original owner sells the property is not so transparentwith the existing pace model . This is the difficulty of using PACE to finance fix ups or renewable energy projects.
Let’s say for example an originator of a PACE loan decides to put their house on the market. He or she will always set the sales price at the highest and best price that they can possibly attain. Eventually someone will make an offer and a contract will be written and the normal underwriting including title work will commence. You now have a sales price that includes renewable and or energy efficiency upgrades that were financed through PACE and are included in the offered and accepted sales price of the home. At this point the title company should flag the elective PACE tax lien and bring the deal back to the seller who has to decide whether to pay off the tax lien or reduce the sales price of a house. If you do not, then the buyer will eventually pay for the energy efficiency fix ups and renewable energy products twice. Once, as they purchase the house, reflected in the sales price, then again, through tax payments over the next 20 years. That’s wrong, and its why a PACE lien needs to be paid off and refinanced at the time of re-sale. If the energy efficiencies in the house are that valuable than the home should qualify for an energy efficient mortgage. This would offset the higher price tag that we presume comes with a house.
Additionally, if you are a homeowner who’s been refused refinancing because of a PACE related tax lien then your choice is to pay off the lien and roll those expenses into your new financing. What’s wrong with that? If you don’t have the equity to get the financing approved, than the deal is on shaky ground to begin with.
Bottom line, loading your house up with a lot of expensive energy efficiency and renewable energy upgrades and not worrying about the fundamentals of pay-as-you-go or pay when sell, is simply flawed.
I read an article this morning that tells the tale of 30 US states that have renewable energy portfolio standards. It is estimated that in those states that have binding RPS standards, they are positioned to grow their renewable energy industries by 250% in order to meet their 2025 goals. What this means for Florida is that while other states are developing and strengthening their renewable energy industries we will be continue to sit on the fence and playing patsy with our utility companies and mostly clueless elected officials. Our inability to make a decision to adopt an RPS is going to delay Florida home-grown businesses from ever getting into the game. Other states that are ahead of us, in regards to an RPS, will vigorously develop the industryto meet their 20% standards. When we finally get our act together those out-of-state businesses will come down to Florida and rule. We will neither have the business models will nor the infrastructure to compete with them. What a truly sad state of affairs for the state that has the greatest potential for renewable energy.
GAINESVILLE, Fla. — The University of Florida Solar Decathlon team will hold several events this week to showcase its project: a student-designed solar home that will compete internationally this summer.
The events culminate in an open house Friday where the public can tour the home that will compete in Solar Decathlon Europe, an international competition designed to advance innovation and research in solar, sustainable and industrialized housing.
The Project: RE: FOCUS team will encourage the UF community to “Make a Change, Not a Footprint” from 10 a.m. to 2 p.m. Wednesday in the Plaza of the Americas with an expo featuring solar panels, renderings of the home, the home’s floor plan staked out to scale, and other information on the project.
On Thursday morning, Project RE:FOCUS will take over the 34th Street wall to inspire the Gainesville community members to make a small change in their lives to reduce their carbon footprint.
Friday’s open house will feature tours of the home, information about the project and presentations by College of Design, Construction and Planning Dean Christopher Silver, team leader and building construction professor Robert Ries and student team leader and doctoral student Dereck Winning.
“The Solar Decathlon gives students from across the university the opportunity to work together on a real-world project, and Friday will be the first opportunity for the team to present their work to the sponsors and the community,” Ries said.
The open house will take place at the UF Solar Energy Park, 2610 S.W. 23rd Terrace, from 3 to 6 p.m., with the presentations delivered at 3:15 p.m. Those who attend are encouraged to carpool to promote sustainability and due to limited parking.