Santa Fe homeowners anxious to retrofit their houses with renewable-energy systems using loans from a ready-to-launch county program will have to wait longer.

The Federal Housing Finance Agency is challenging loan programs that help homeowners cover the initial purchase and installation costs of renewable-energy systems through specially assessed property taxes. The agency's stance has stalled the launch of Santa Fe County's version of a Property Assessed Clean Energy (PACE) program. Santa Fe legislators who championed a 2009 state law allowing counties to establish the program are angry.

"The FHFA is making a bone-headed decision," said Rep. Brian Egolf, D-Santa Fe.

In 2009, the Legislature passed bills drafted by Egolf and Sen. Peter Wirth, D-Santa Fe, allowing New Mexico counties to create special assessment tax districts for renewable-energy retrofits. Homeowners can opt into the district, take out a long-term loan to install a solar photovoltaic, solar thermal or other renewable-energy system and pay the loan back through their property taxes. The special assessment in the "renewable energy financing district," only applies to homeowners who want to join the program.

Santa Fe County was ready to launch the state's first renewable-energy financing district this summer. Similar programs are available in 22 other states, according to Wirth. The legislators say special assessments for renewable-energy retrofit loans are little different from special assessments levied on property owners to pay for paving, water systems and other projects.

But FHFA, the agency that regulates Fannie Mae, Freddie Mac and a dozen federal home loan banks, took issue with the programs and issued directives that will restrict the kinds of loans homeowners can get if they live in an area that offers a PACE program for renewable-energy retrofits.

On July 6, FHFA asked state and local governments to reconsider and temporarily halt PACE programs. Loans through the programs "pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors," said FHFA in a statement.

FHFA officials are concerned because the retrofit loan becomes a first lien on a property. "First liens for such loans represent a key alteration of traditional mortgage lending practice," the FHFA said.

If a house is sold through foreclosure, first liens are paid after delinquent property taxes but before first or second mortgages.

Wirth and Egolf say FHFA's argument doesn't make sense. "All other special assessments are first liens and all take precedence over mortgages," Egolf said.

"Why single out and question the special assessments for renewable energy?," Wirth said.

New Mexico's law prevents the first lien on a retrofit loan from equaling more than one year's assessment. For example, the annual assessment on a $25,000 loan and fees for a renewable-energy system at 7 percent interest over 20 years equals about $2,326 a year. If the home went into foreclosure, the first lien for the renewable-energy assessment would equal $2,326.

Duncan Sil, Santa Fe County's economic development director, said the county's program was ready to launch, and a lot of homeowners were asking to apply. Sil said the program will help participating homeowners save money on their utility bills, at least equal to their increased property taxes, provide jobs for installers and reduce Santa Fe's dependence on fossil fuels. Now the FHFA stance could stall the county's version of the retrofit loan program for 90 days or more.

While the county was going to underwrite the pilot phase of the retrofit loan program with $10 million in private equity funds, those investors are now waiting to see what FHFA will do before moving forward.

Sil understands FHFA's stand, even if he disagrees. "I think there is always a hesitancy when it comes to trying anything new in the financial market, especially after the last two years," Sil said. "The financial market got a black eye."

Bill Enloe, chief executive officer of Los Alamos National Bank, said he supports the renewable-energy retrofit programs, and thinks FHFA is overly concerned. But, "there is room in the programs for fraud, no doubt about it," Enloe said. "How well that's monitored and how you put in the safeguards to not let that happen, those are the big questions when doing a house-by-house program like this."

New Mexico's congressional delegation and others are urging FHFA to rethink its stance. California Attorney General Jerry Brown has already filed legal action against the FHFA over the PACE programs.

FHFA isn't backing down. On July 14, the agency's acting director, Edward J. DeMarco, issued a statement saying in part the agency "will defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac."

For more information about Santa Fe County's renewable- energy financing district, see renewsantafe.com

For more information on PACEnow, a coalition of groups that support PACE programs, go to http://pacenow.org

Contact Staci Matlock at 986-3035 or smatlock@sfnewmexican.com.


Debating Property Assessed Clean Energy (PACE) programs

FHFA Concern: PACE does not have enough protections for consumers and lenders.

Santa Fe County/PACE response: The U.S. Department of Energy has established guidelines for pilot PACE programs to ensure protection of consumers and lenders; in addition, a White House Inter-Agency Task Force has developed “best practices” for consumers and lenders.


FHFA Concern: PACE loans create first liens that take precedence over mortgages and alter traditional mortgage lending practices.

Santa Fe County/PACE response: New Mexico law allows only one year of an assessed PACE loan to be a first lien in any given year; PACE financed loans will target retrofits where the savings in annual energy costs exceeds the cost of the annual assessment.


FHFA Concern: Underwriting a PACE loan is based on value of the property, instead of the ability of the borrower to repay it. The programs lack Truth-in-Lending Act and other consumer protections. And there’s no guarantee the renewable energy systems would reduce energy consumption and save the homeowner money.

Santa Fe County/PACE response: PACE participants agreed to a debt-to-income test to strengthen guarantees to underwriters, but FHFA regulators didn’t respond to proposal. PACE participants agreed to more Truth-in-Lending disclosures, but FHFA regulators didn’t respond; PACE programs, including Santa Fe’s, require energy audits on homes before renewable energy systems are installed so cost and energy savings can be measured.


FHFA Concern: First liens established by PACE loans are different from routine tax assessments and pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors.

Santa Fe County/PACE response: PACE loans are backed by property, the same method local governments use to pay for sewers, sidewalks and other improvements through special taxing districts.


FHFA Concern: PACE loans exceed the size and duration of typical local tax programs.

Santa Fe County/PACE response: PACE loans range from $2,500 to $50,000 with terms up to 20 years, similar to traditional special assessments.

PACE is the only special assessment that can return money to property owners by lowering energy bills. In addition, electricity customers in Santa Fe receive an energy credit for renewable energy from Public Service Company of New Mexico.