In 2010, just as property-assessed clean energy (PACE) programs were hitting their stride, federal housing regulators issued a ruling that devastated advocates.
That's when the Federal Housing Finance Agency told government-backed housing lenders Fannie Mae and Freddie Mac they couldn't underwrite mortgages for people interested in taking advantage of the financing option, which allows homeowners to finance solar and efficiency upgrades through property taxes over twenty years. The agency argued that the program was risky for lenders because PACE liens took precedence over a mortgage in the event of a default.
Consequently, the bulk of PACE financing shifted over to the commercial market. But the residential market didn't completely die as some predicted.
Ygrene, one of the nation's largest administrators of PACE programs, is proving that residential demand can continue to grow -- as long as homeowners are well educated about the nuances of the loans they are taking on.
This morning, the company launched a $230 million bond issuance for PACE in South Florida that will be available to residential and commercial property owners. Ygrene has already approved 75 projects worth $18 million in the state. It also has a $65 million pipeline of projects under the Florida program, with many homeowners participating.
"There’s been a lot of fear, uncertainty and misinformation in the marketplace around the risk to homeowners," said Ygrene CEO Stacey Lawson in an interview. "But it's really just a simple business decision they have to make."
Homeowners with mortgages backed by Fannie and Freddie aren't really banned from participating in the program. They are simply required to pay off the lien if they move or refinance. That can be a major deterrent for some people, as it eliminates the flexibility of being able to pass the investment on to the next property owner. But if homeowners understand the risk, a sizable number will likely still choose to participate.
Lawson said that Fannie and Freddie have rarely asked a homeowner to pay off the lien -- so far. And she argued that energy savings accrued over the life of the retrofit can make up for the payment.
"We just need to educate the homeowner about that decision. We're still getting dozens of applications a day for PACE loans, so the demand is absolutely there," said Lawson.
Ygrene currently operates PACE programs in California, Georgia and Florida with help from a revolving credit line from Macquarie Bank. Nationally, it has completed applications for 150 projects valued at $40 million. Residential projects represent about half of Ygrene's portfolio on a project volume basis; in dollar terms, commercial projects represent about 85 percent of the portfolio.
The $230 million available in Florida today will be used to finance energy efficiency, distributed generation and hurricane resiliency projects. The package was put together in partnership with the Carbon War Room.
In July, Ygrene announced the largest PACE project ever in partnership with Johnson Controls -- a $3.16 million equipment retrofit on four buildings in Sacramento's Metro Center Corporate Park.
Ygrene explains its service for homeowners: