LOS ANGELES — Los Angeles County is taking steps to re-start its Property Assessed Clean Energy residential program by early 2015.
PACE allows property owners to finance energy efficiency and water conservation projects through property tax assessments. They can be used to repay bonds.
Los Angeles County issued a request for proposal seeking program administrators for the PACE program last week. Applicants have until Sept. 30 to respond.
The county originally created its PACE program in 2010, but put the residential component on hold after the Federal Housing Finance Agency instructed government-sponsored enterprises Fannie Mae and Freddie Mac, to stop buying mortgages with a PACE lien in July 2010.
Fannie Mae and Freddie Mac purchase home mortgages from banks, securitize them, and sell them as mortgage-backed securities to investors.
Commercial PACE financing proceeded in California, but only a handful of California counties, including Sonoma and Riverside, moved ahead with residential programs after the FHFA made its ruling.
This year represented a turning point for residential PACE when the state allowed Western Riverside Council of Governments to open its Home Energy Renovation Opportunity Financing Program to counties across the state.
The WRCOG HERO’s program launched in Riverside County in September 2011 for commercial projects and three months later for homes. HERO is now available to nearly 10 million California residents who reside in 13 counties including Los Angeles, Orange, San Diego, Riverside, San Bernardino, Sacramento, Merced, Kern, Solano, Stanislaus, Imperial, Fresno and Santa Clara counties, according to WRCOG’s website.
The Los Angeles County Board of Supervisors passed a resolution in May allowing 42 of the county’s 88 cities to use WRCOG’s HERO program. On Aug. 12, the board voted to re-start its own program in order to have better control over PACE financings.
Douglas Baron, director of public finance for the Los Angeles County Treasurer and Tax Collector's Office, said the main impetus behind Los Angeles County re-starting its own residential program was to protect the county’s homeowners.
“Any residential PACE program has risk, but the truth is that it is already operating in Los Angeles County,” Baron said. “We want to establish our own program, so that we can better manage the risk.”
According to Baron, the FHFA has said in rulemaking memoranda that it could alter the underwriting criteria for homes in jurisdictions that allow for PACE assessments; or that it could cease underwriting mortgages altogether in those jurisdictions.
Under the resolution passed by county supervisors on Aug. 12, if the FHFA initiated either of the two steps threatened in its rulemaking in 2011, the county would shut down its PACE program immediately, Baron told the supervisors during the board meeting, according to a meeting transcript.
“We would expect that any FHFA action would be prospective in nature and would not impact those who already have initiated case loans on their properties,” Baron said at the meeting.
L.A. County’s program institutes additional disclosure in the assessment contract, and also in the application, which is not being done in all of the existing PACE programs. The county also included a more robust reserve fund to mitigate against bondholder foreclosure that would be included as part of the property tax levy. The RFP also emphasizes controls on the contractors who work directly with the homeowners to insure no predatory lending practices are taking place.
Over the past three months, 600 residents have entered into assessment agreements valued at $13 million in Los Angeles County, said Supervisor Mark Ridley-Thomas, according to the meeting transcript.
“PACE financing can be more expeditious than a traditional loan or credit line, and the interest rates appear to be comparable, or better, than other products on the market,” Ridley-Thomas said. “I look forward to seeing a county-wide program get implemented as quickly as possible that offers consumer protections.”