EcoMotion’s last issue was opened up by more viewers than past issues, and it caused me to think: Why? What caught a spike in folks’ interest? This was the most since the Spanish travelogues in 2009.
After less-than-deep analysis, I think its food. Readers must have seen food trucks in the subject line, and then food trucks atop the stories. Forget about their energy, let’s talk seared ahi! Sure, there is a lesson here for us all. Food works. Lure ’em, bait ’em, find out what’s on their minds, engage at a visceral level! Seared Ahi, red wine, greek yogurt.
Now to junior liens: This past week, the 9th Circuit Court of Appeals dismissed a lawsuit filed by the State of California, Sonoma County, Palm Desert and others that claimed that the FHFA acted inappropriately in its directive to lenders not to purchase mortgages with PACE liens. The judge ruled that the court had no jurisdiction in the matter as FHFA had acted in its role as conservator of these enterprise organizations. Its actions did not constitute fiat as regulator, but steps as conservator to protect investments. It’s not a crippling step for PACE, but another blow. And more lenders may follow suit.
Remarkably, just days later, the University of North Carolina issued a study that found that energy-efficient homes were a third less likely to default on mortgage payments. Just as the Energy Star-rated homes in the study were more able to pay their mortgages, this would suggest that PACE liens would similarly have a positive effect, just the opposite of the court findings and subsequent ruling. Is a great financing mechanism being dismissed for the wrong reason? Despite pages and pages of testimony, the “conservator” took what it thought is the conservative approach. But perhaps this was not the conservative approach given the data. Nevertheless, the ruling stands.
There may be an answer: Junior liens.
FHFA has fought successfully against being subordinated. That’s a natural reaction, despite a history of municipal subordinating assessments. Now FHFA has had its day in court, knocking conforming loans out of the PACE business.
Back to the answer: PACE advocates have already conceded to equity requirements to qualify participating homeowners. There has to be sufficient equity in the home for PACE financing. If so, a junior lien would be equally sound for all. This is the State of Maine solution. Removing subordination removes the fight and still gets the job done. Sure, senior lien position implies a more secure investment. To “shore up” investor confidence in junior liens, Maine and Vermont have created loan-loss reserves to mitigate risks of potential investors.
Maine’s program began in 2010. Now, 100 communities that constitute 57% of the state’s population have passed ordinances providing for PACE as administered by Efficiency Maine. The program began with a $20.4 million revolving fund. Efficiency Maine provides financing up to $25,000 for 15 years at 4.99%.
Junior lien status is also successfully now employed by the states of Vermont and Oklahoma. In response to FHFA’s directives to its lenders, they “renovated” their original PACE laws with a solution that met FHFA’s needs. This solution was confirmed in a letter response from FHFA. The downside is potentially increasing the risk of defaults for local government. To counter this, borrowers in Vermont now pay 2% upfront to a loan-loss reserve, backed also by the Regional Greenhouse Gas Initiative (RGGI).