PACE financing for home solar gets federal backing

July 20, 2016
Solar Installation

Photo: Michael Noble Jr., The Chronicle
July 19, 2016

The Obama administration — or at least, most of it — threw its support Tuesday behind an innovative way for homeowners to pay for solar arrays and energy-efficient renovations, even though one key federal agency remains staunchly opposed.

The move marked another odd twist for a financing concept that was born in Berkeley and spread quickly across the country before federal regulators tried to kill it.

The White House announced Tuesday that both the Federal Housing Administration and the Department of Veterans Affairs would encourage the use of Pace (Property-Assessed Clean Energy) financing among homeowners who want to install solar panels or cut energy or water use in their houses.

The step is part of a larger administration effort — the Clean Energy Savings for All Initiative — that also includes training more Americans to work in the fast-growing solar industry.

Pace financing allows homeowners to borrow all the money for a solar array or efficiency renovation up front and pay it back, bit by bit, as a line item on their property taxes. When the property is sold, the obligation to make those regular payments transfers to the new owner.

“You can go solar right now, you can save money on your energy bills right away, and in the process you can help America lead the world in the fight against climate change,” President Obama said in a short online video the White House released Tuesday explaining the program.

Created in Berkeley in 2008, the idea was picked up by cities and states across the country.

But in 2010, the Federal Housing Finance Agency announced that Fannie Mae and Freddie Mac would not back mortgages for homes with Pace projects. Since Pace loans place a lien on the property, the agency argued that those liens could have first repayment priority in case of foreclosure, potentially costing taxpayers money. Pace went into a deep freeze.

The wave of foreclosures that the agency feared with Pace properties never materialized, and politicians pressed the Housing Finance Agency to change its stance. It never did.

But the agency also didn’t try to interfere as California and 14 other states sought ways to move forward with Pace anyway. California, for example, created a $10 million fund in 2013 to protect lenders to Pace properties. If banks foreclose on a California home with a Pace lien, the fund will cover any losses attributable to that lien.

Gov. Jerry Brown, who joined Obama administration officials on a conference call announcing the new effort Tuesday, slammed the Housing Finance Agency’s position as “silly” and said it needs to change.

“They’re stubborn, they’re unreasonable, they’re acting like East Coast bankers,” Brown said. “They’re so paranoid and so fearful, they won’t step up to the plate and do the right thing.”

Both the Federal Housing Administration and the Department of Veterans Affairs will now back mortgages for Pace properties, provided that in case of foreclosure, only overdue Pace payments can take first repayment priority over the mortgage itself. Brian Deese, a senior adviser to the president, said the guidelines could serve as a template for future discussion with the Housing Finance Agency.

However, the agency’s director, Mel Watt, issued a statement Tuesday saying his office “continued to have serious concerns” with Pace financing.

Still, the idea’s supporters welcomed Tuesday’s developments, saying they would help accelerate the spread of solar power and boost the efficiency of American homes. According to the White House, nearly 100,000 households have used PACE financing to date.

“This is a further signal that Pace is here to stay, that homeowners can take advantage of it with confidence,” said Cisco DeVries, who created Berkeley’s Pace program while serving as chief of staff to Mayor Tom Bates. He is now CEO of Renew Financial, a company that runs a Pace program called CaliforniaFirst on behalf of member cities and counties throughout the state, including San Francisco.

“It’s a proud day,” DeVries said. “Another great idea out of Berkeley — who knew?”

David R. Baker is a San Francisco Chronicle staff writer. Email: Twitter: @DavidBakerSF