1. Overview and History of PACE
Jared Asch
10/8/14

2. What is PACE? Property Assessed Clean Energy (PACE)is a financing tool
Based on land-secured financing districts used to pay for improvements (i.e. street improvements, lighting, etc.), funded by bonds
Finance energy efficiency, renewable energy, water efficiency upgrades, and electric vehicle charging stations
Property owners agree to an assessment on their tax bill. They repay the financed amount as a line item on their property tax bill
Interest rates range from %

3. Benefits of PACE For Property Owners For Local Governments Voluntary
Allows for transfer of repayment obligations
Eliminates upfront costs
Long-term repayment (~20 years)
Decreases utility bills/operating costs
May be used for energy efficiency, renewable energy, water upgrades, and electric vehicle charging stations
For Local Governments
Stimulates local economy with jobs
Achieve greenhouse gas reductions, reduce water use
No liability to general fund

4. Commercial PACE
Opportunity: 2012 study showed commercial buildings consumed 37% of California’s electricity
Eligible properties:
Commercial
Industrial
Multi-Family (5+ units)
Greater flexibility in project cost, measures implemented, and payback terms
Using Energy Efficiency to Meet State and Federal Carbon Pollution Reduction Goals, National Governors Association State Workshop on Innovations in Energy Efficiency Policy: West and Midwest, January 29, 2104

5. BayREN and Commercial PACE
The Bay Area Regional Energy Network (BayREN) is a collaboration of the 9 Bay Area counties, led by ABAG, working together for a sustainable energy future
BayREN currently has funding through the CPUC for counties to do outreach and marketing on Commercial PACE
Developing market segmentation tools, such as a building inventory profile of good PACE candidates
Will coordinate with PACE administrators

6. History of Residential PACE
2008: First PACE program implemented by City of Berkeley
2010: Federal Housing Finance Agency raises concerns about effects of PACE liens on mortgages held by Fannie Mae and Freddie Mac
2010: Fannie Mae and Freddie Mac will not buy home mortgages with senior PACE liens
Some PACE administrators suspend residential PACE programs
2013/2014: Governor Brown proposes solution
Senate Bill 96 authorizes PACE Loss Reserve Program (2013)
Make FHFA whole in the event of foreclosure of PACE property
$10 million Loss Reserve through California Alternative Energy and Advanced Transportation Financing Authority (CAEAFTA)
FHFA statement in 2010 directed Fannie Mae and Freddie Mac to “protect safe and sound operations,” possibility of tightening borrow debt-to-income or loan-to-value ratios in jurisdictions with PACE programs. Risk to homeowners that Fannie/Freddie find they have breached their mortgage

7. Challenges for Residential PACE - FHFA
In 2010, the Federal Housing Finance Agency (FHFA) raised concerns regarding the effect of residential PACE lien priority on mortgages backed by federal mortgage enterprises
FHFA instructed federal mortgage enterprises to adjust lending criteria and require PACE assessments to be extinguished before purchasing or issuing a mortgage
In response, most PACE programs halted their residential financing
The State and several other parties sued FHFA but the 9th Circuit Court of Appeals ruled in FHFA’s favor in March 2013

8. The Reserve Fund

9. SB 96 - PACE Loss Reserve Program
In response to FHFA’s concerns Senate Bill 96 (Committee on Budget and Fiscal Review, Chapter 356, Statutes of 2013) authorized CAEATFA to create:
“a PACE risk mitigation program for PACE loans to increase their acceptance in the marketplace and protect against the risk of default and foreclosure.”
This program became known as the PACE Loss Reserve Program
The Budget Act of 2013 allocated $10 million for the implementation of this program

10. Program Description
The PACE Loss Reserve Program will compensate first mortgage lenders for losses resulting from the existence of a PACE lien in a foreclosure or forced sale.
The reserve will cover:
PACE payments made during a foreclosure (while the first mortgage lender is in possession of the property)
Any losses to a first mortgage lender up to the amount of outstanding PACE payments when a county conducts a forced sale on a home for unpaid taxes
This program is designed to put first mortgage lenders in the same position they would have been in without a PACE lien on the property. In essence, to address FHFA’s concern by taking away the first mortgage lenders risks.
EXAMPLES
- FORECLOSURE
This provision is intended to allow reimbursement of the first mortgage lender for the portion of property tax payments attributable to the PACE lien actually made by the lender while in possession of the property. For example, if the property tax obligation is $4,600 annually, including a PACE obligation of $600 per year, and the lender makes both semi-annual tax payments, the program would then reimburse the lender for the $600.
Forced Sale
For example, assume:
1) a property subject to an outstanding mortgage of $400,000;
2) unpaid taxes of $60,000;
3) a PACE lien $10,000 in arrears at the time of sale; and,
4) a forced sale resulting in a sales price of $410,000.
Based on this scenario, the first mortgage lender would see a loss of $50,000. The program would reimburse first mortgage lender for $10,000 (the amount of the PACE arrearage).

11. Covered Losses Scenario 1: First mortgage lender forecloses on a home
Once the mortgage lender takes possession of the home, it would make regular property tax payments
Loss reserve can then be used to reimburse the first mortgage lender for the PACE payment portion of the property tax paid
Scenario 2: County auctions a property for unpaid taxes
If the sale price does not cover the unpaid taxes and the first mortgage, the reserve can be used to cover losses on the mortgage up to the amount of unpaid PACE assessments
In both cases, normal PACE payments would resume when a third party purchases the home

12. Program Description PACE assessments are enrolled for their full terms
PACE programs will pay a small administrative fee (0.25%) based on loan volume and report semi- annually
The fee will not be assessed on outstanding loans at the time of enrollment
CAEATFA expects the $10 million allocated for the reserve to last beyond ten years

13. Low Expected Liability to Reserve
Homeowners rarely default on property tax payments
Subset of homeowners
Screened for mortgage and tax delinquency, equity, etc.
PACE improvements often give homeowners more discretionary income
Losses that do occur will be for relatively small amounts
Only cover payments during period of foreclosure ownership
Normal PACE payments resume when a third party purchases the foreclosed home

14. Consumer choice
11/16/2018

15. It’s Happening now Nearly $450 million plus in projects
$300 million in project pipeline
25,000 plus homes on residential
California expansion
Stronger Programs
Private Capital
Zero capital for cities
Reserve Fund
11/16/2018