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Feds force halt to Sonoma County energy loan program


Sonoma County has suspended an innovative 16-month-old program to help property owners finance solar installations and other energy-saving retrofits after a federal agency announced Tuesday that such programs present a risk to giant government-chartered mortgage lenders.

The decision prevents new applications and freezes 578 pending applications with the county’s Energy Independence Program. It does not affect participants who signed their deals with the county before Tuesday.

Still, the suspension of new business — and the federal guidelines prompting it — are a significant blow to the momentum and money flowing toward energy efficiency and green building locally, said county officials, contractors and others.

Some experts say the new guidelines also could affect many mortgage holders with no connection to the county’s program by lowering loan limits.

“We were astounded, with all the emphasis the federal government is putting on energy efficiency … that the program would be deemed unacceptable,” said Valerie Brown, chairwoman of the Sonoma County Board of Supervisors.

“It’s just a disaster,” said Craig Thompson, vice president of the Redwood Empire Redmodelers Association. Thompson said that a dozen of the association’s 75 members have invested thousands of dollars each to gain certification in energy retrofit work since the program started in March 2009.

“That investment is now lost,” he said.

The county initiative is one of number of government-financed home and business retrofit programs called Property Assessed Clean Energy, or PACE, that have been authorized by 22 states and supported by the Obama administration with $150 million in stimulus funding.

Sonoma County’s program, the nation’s first ongoing countywide program, has loaned $30 million for more than 1,000 residential and commercial improvement projects, including window and door upgrades and renewable power systems such as rooftop solar panels.

The county pays for the retrofits through municipal bonds and then places liens on the properties, which owners repay over a 20-year maximum term, plus interest, through their annual property tax bill.

The Federal Housing Finance Agency said Tuesday that such arrangements “present significant risk to lenders” and “are not essential for successful programs to spur energy conservation.”

Federal officials took issue with the fact that PACE liens, like other property tax assessments, take priority over the mortgage if the borrower defaults.

County officials have said the money at stake isn’t that much. In a foreclosure on a home with $10,000 worth of energy improvements, for example, the county would seek only back taxes — $500, plus interest, for each year of unmade payments — and not the full amount of the project debt, according to officials.

So far, no borrowers with a PACE lien have defaulted in Sonoma County, according to officials, and county records show that homeowners participating in the energy retrofit program are half as likely to default on their tax bill as non-participating homeowners.

A spokeswoman for the Federal Housing Finance Agency was not able to determine Wednesday how much money lenders have lost or stand to lose because of loan defaults associated with PACE programs.

In May, Fannie Mae and Freddy Mac, the two mortgage giants overseen by the Federal Housing Finance Agency, sent letters to affiliated lenders saying the energy liens could not take precedence over a mortgage but offered no guidance on how to handle PACE loans.

On Tuesday, the agency directed the two lenders to significantly tighten its loan requirements for new borrowers who have a PACE lien.

It ordered the lenders to raise their income ratio for borrowers and require that local affiliated lenders seek approval from Fannie Mae or Freddie Mac before approving any home loan including a PACE lien. Sonoma County already requires the latter step in commercial applications.

In a move that could affect a much larger number of borrowers, the federal agency also ordered lenders in areas where PACE programs are offered to lower the maximum amount all property owners can borrow to take into account the possible effect of PACE loans on lenders’ cash security.

Because Freddie Mac and Fannie Mae control more than half of all home mortgages in the country, that requirement “could affect a significant pool of people” in Sonoma County, said Kathy Larocque, deputy county counsel for Sonoma County.

The guidelines could also affect buyers looking to finance the purchase of a home with an existing PACE lien, Larocque said.

“It just seems to discourage PACE programs generally,” she said of the new guidelines.

The future of the Sonoma County’s program depends especially on buy-in from homeowners, which represent 96 percent of all projects in the county.

Without that support, a program based only on commercial applications might not be viable, Larocque said. The Board of Supervisors is set to weigh in on that question Tuesday morning during a presentation and discussion of the new federal PACE guidelines as part of their regular board meeting.

Nationwide, the future of the PACE programs also depends on wrangling between state and federal officials. In recent weeks, Gov. Arnold Schwarzenneger, Reps. Mike Thompson, D-St. Helena, Lynn Woolsey, D-Petaluma, and Henry Waxman, D-Santa Monica, have all expressed support for the programs.

“PACE is a program that benefits both the economy and environment in California and our office will continue to push the Federal Housing Finance Agency to reverse its shortsighted position,” said Evan Westrup, a spokesman with the state Attorney General’s Office.

Local contractors and energy efficiency consultants, meanwhile, are lamenting the possible demise of a program that they say has been a boon to business.

State officials have estimated that PACE programs, most of which are just months old, could help drive up to $1 billion in new projects in California and create more than 20,000 jobs in the recession-wracked construction industry.

“You take this away, there’s a hole, a big hole,” said Craig Lawson of Santa Rosa-based Pinnacle Homes.

County, building industry and energy efficiency officials said they remain hopeful that a solution would be found in the Obama administration or in Congress to the impasse with the housing finance agency.

“I’m looking at this as a stumbling block,” said Barry Cogbill, a Santa Rosa clean energy consultant and board member of Solar Sonoma County, a consortium of local governments and businesses. The county, he said, is “very motivated to keep (the energy program’s) doors open. And we’ve got a lot of heavy hitters weighing in trying to get some sort of responsible policy in place.”

14 Responses to “Feds force halt to Sonoma County energy loan program”

  1. Beef King says:

    What is most amazing about this debacle on the part of Obama, Dodd and Frank is that they had plenty of time to recognize the problem and solve without it having to come to public humiliation of well intentioned government employees.
    Make no mistake there are plenty of people not only here in Sonoma County but across America who have put their good credit at risk upon the advice of their local government officials.
    Rod Dole knew there was some things to iron out, he as much said so when the program began, but he shouldn’t be left holding the bag because Obama and the Boys forgot to do the work.
    Double irony is that while Obama is fumbling the ball on solar, he announced this week he is giving $2 billion dollars to a Spanish solar company and some unknown little group from Colorado. What is he thinking? A Spanish company? We have great solar manufacturers right here in Sonoma County who should be getting the boost, not a foreign company.
    And while our local solar loving citizens twist in the wind, Obama is in Nevada for Harry Reid telling people that 14% unemployment is good and that he’s done a great job.
    Nobody works until Obama is gone.

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  2. Rose says:

    The County was following California State law,AB 811,and federal guidelines, which allows for the PACE loans to be treated as assessments.

    PACE property assessments pose little risk to the mortgage industry or to homeowners, and provide great benefits to the community, including JOBS!

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  3. Tim Foster says:

    Because of this recent news, the Sonoma County Energy Independence Program (SCEIP) has been put on hold. Sonoma County Board of Supervisors are meeting on Tuesday July 13th and will be taking public input.

    I encourage anybody in Sonoma and surrounding areas to come and show support for this program and others like it which are being severely undermined by this development.

    Scroll to bottom of page to read the agenda item: http://sonoma-county.granicus.com/AgendaViewer.php?view_id=2&event_id=20

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  4. Lyn says:

    H, you nailed it! The PD’s sob story on Sunday was devoid of clear information. That the county wanted its debt to come first became obvious only after every effort to elicit tears had been exhausted. Surprise, mortgage lenders balked.

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  5. joe says:

    Clearly a case of mistaken identity, this program does not violate any federal laws! When credit card companies dediced to raise rates for those with a “high risk of default” they not only increased their risk of non payment, but lost customers who became angry with the power grab. Let’s also not forget the feds lowering of standards for home loans that boosted the issue originally. The burden of fiscal responsibility clearly falls on the consumer-citizen, not big finance(freddy, fanny, visa, mc,amex, and the fed-one big happy family)Why should we be so happy with the federal government when all it does is serve itself?

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  6. Jay says:


    Step 1) Don’t read your contract.

    Step 2) Complain that you’re getting screwed (next time read Step 1).

    Step 3) Get people who didn’t make the same mistake to pay for yours.

    Main street acts just like Wall Street sometimes.

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  7. Michael says:

    thank you Beef King for the explanation, you clearly have a good understanding of the process.

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  8. Beef King says:

    This is yet another failure by the Obama administration and the dysfunction of Obamas ‘progressive’ political adventures.
    It is the equivalent of offering us a cookie, then slapping our hand when we take it.
    Is Obama destroying the economy on purpose, bit by bit, or is he just a bumbling fool?
    Either way, Obama needs to fix this very real problem TODAY.
    No more foot dragging Obama, we need action.

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  9. Beef King says:

    ….Michael says “I am not sure I understand what this means? “Some experts say the new guidelines also could affect many mortgage holders with no connection to the county’s program by lowering loan limits.”

    Michael, it means the government believes that the large number of borrowers in our region presents a substantial default and loss risk, and therefore is telling lenders they cannot lend as much in that region as they would in other regions that do not have a large exposure to the PACE programs.
    In other words, the government is forcing local lenders to bow to their view of us from Obamas’ oval office.

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  10. Zuma says:

    The county tried to pull as fast one! Rather than follow the order of liens on homes, the county attempted to put itself in a position that would make their loan and lien superior to the ones in front of them!
    Once again, the county supervisior show little respect for our customs and the federal agencies!
    Is it no wonder this county is failing!

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  11. Michael says:

    I can see both sides to this one, but I hope that the PACE programs can be reinstated.

    I think the theory behind making it an assessment and not a “loan” per se is that just like an assessment for new sidewalks or new sewer the “energy improvement” projects are something that benefit the community at large (at least that’s the theory).

    Further, it’s important to point out that all of the money received from this program went right back into the property, it wasn’t as if folks were buying a new BMW or even making aesthetic improvements. These improvements increased the value of the property and would seemingly mitigate risk to the bank in the event of a default, especially if they ended up obtaining that added value for cents on the dollar as stated by Rod Dole.

    Actually, that last point is more of a concern to me than the program itself. If the bank is not paying the assessment, who is?

    It sounds like the Federal Government reacted without having all the facts and that will have a negative impact on certain aspects of the economy.

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  12. Michael says:

    I am not sure I understand what this means? “Some experts say the new guidelines also could affect many mortgage holders with no connection to the county’s program by lowering loan limits.”

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  13. Kay Tokerud says:

    I have been very skeptical about the acceptability of putting energy retrofit loans in first place, ahead of all other loans against homes. By adding these loans to the property tax bills, in the event of a foreclosure, these added encumbrances would take priortity over home mortgages. This places additional risk to all those lenders, including private citizens that purchase mortgages.

    Also, the homeowner is at risk of not being able to sell or refinance if these loans are not paid off. The SCEIP Program mistakenly took for granted that lenders would be willing to assume more risk. Why would they do that? I feel sorry for all those well-meaning folks who trusted their government to protect them from what seems like a very serious situation. The people who created the program found it acceptable to increase risk for mortgagors and increase risk for property owners which of course means little or no risk for themselves. I also object to charging 7% interest, more than for a new mortgage, for a loan that should probably be offered at about 3% to make it affordable for more people to do the upgrades to their properties. The county needs to go back to the drawing board.

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  14. H says:

    This result is completely unsurprising. Sonoma County tried to pull a fast one by treating what should be a junior construction deed of trust as a property tax lien, basically jumping to the front of the security line.

    There is a simple solution: treat new PACE funding as a regular loan, with a deed of trust that is junior to the mortgage (rather than as a senior tax lien).

    No lender would want their borrower to suddenly borrow money and place a line ahead of that lender without consent.

    Either Sonoma County did not think this through carefully, or it was trying to be too clever. Either way, it needs to redesign the program so that it does not screw over senior lenders.

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