Summit County Energy Loans on Hold

This article was reported in the Summit Daily News, July 28, 2010, by Julie Sutor.

SUMMIT COUNTY — Ten local households are hoping to receive low-interest loans this summer to pay for energy-saving upgrades like new insulation, crack-sealing and efficient boilers. But loan giants Fannie Mae and Freddie Mac are standing in the way.

The 10 households are prospective participants in Summit County government's Home Energy Loan Program (HELP), launched this year as a small-scale pilot project. Each home underwent an energy audit that identified the most cost-effective and energy-saving improvements. Under HELP, households are eligible to receive loans of up to $17,000 for energy improvements. The loans would be repaid at 4 percent interest over a period of 10 years through the owners' property tax bills. Of the 10 households that have applied so far, the average loan amount would be $12,000.

“They're all good, they're all cost effective, and they're all going to create good energy savings,” said Lynne Westerfield, of High Country Conservation Center.

However, Fannie Mae and Freddie Mac won't touch mortgages on homes in which people have participated in energy loan programs like HELP. The two corporations do not provide home loans directly; rather, they buy mortgages from lenders after borrowers complete the closing process, thereby allowing lenders to complete more loans.

The problem stems from the fact that HELP loans, and others like them, are repaid through property tax bills. That's convenient for the homeowner and relatively simple for the county. And it helps the county meet its goal of reducing energy consumption in the residential community. But in the event of a foreclosure, back property taxes (including the balance of the HELP loan, in such cases) are repaid first, before the mortgage. In essence, such mortgages are riskier investments for Fannie Mae and Freddie Mac, which together guarantee more than half of the home mortgages in the country.

Other communities that offer similar programs, including the Town of Breckenridge, the City of Boulder, Pitkin County and Gunnison County, are likewise impacted. In all, 22 states have authorized the loans, often referred to as Property Assessed Clean Energy, or PACE programs. A new batch of PACE pilot projects was set to launch this summer, with the help of $150 million in Recovery Act and Department of Energy funding.

Some mortgage lenders have proposed increasing the loan amount on all mortgages in communities that offer PACE programs, regardless of whether a given borrower plans to partake.

“We had something elegantly simple turn into something unbelievably complex,” assistant county manager Thad Noll said.

A national problem

At a meeting of the Summit Board of County Commissioners Tuesday, county officials agreed to put the program on hold, pending a solution at the local, state or federal level. The county commissioners were firm on the point that they could not offer a program that would effectively raise the purchase price of homes throughout the county.

“This is not a Summit County problem: This is a national problem,” Commissioner Thomas Davidson said. “They have to figure this out. It's too important to too many people.”

The Colorado Congressional Delegation and other lawmakers are applying pressure at the federal level to salvage the PACE programs. The State of California, where PACE was first conceived, has gone so far as to sue Freddie Mac, Fannie Mae and the Federal Housing Finance Agency (FHFA).

Rep. Jared Polis, who represents Summit County, signed on to a letter earlier this month urging FHFA Director Edward DeMarco to resolve the deadlock.

“PACE programs have been expanding rapidly across Colorado because they create jobs, cut pollution and allow homeowners the chance to save money on their utility bills,” Polis said. “Resistance to these groundbreaking programs has gone on for far too long, and our communities are suffering.”

Polis said DeMarco should step down from his post if he won't cooperate on the issue.

In the mean time, Summit County's 10 households, and others like them across the country, will have to wait.

“We're going to tell these people and their contractors that we're still trying. But we're on hold for right now,” Noll said.

The Summit County loans were tentatively scheduled to go out in mid-August. Delays have the potential to increase the cost or complexity of the proposed home-improvement projects, since many such upgrades are easier to perform before cold weather hits.