From: PACE [firstname.lastname@example.org]
Sent: Thursday, July 08, 2010 5:47 PM
Subject: FW: Conf Call: PACE Stakeholder Federal Legislation To Remove Regulator Blockade
Please join us for a PACE stakeholder update conference call on Wednesday, July 14th at 1pm EST. We will have a limit in participants so please RSVP as soon at possible to PACEcallin@gmail.com to ensure your participation. There is strong support in Washington for PACE legislation and with your help we can clear the final hurdle for PACE financed retrofits.
In advance of the call, please consider what support letters you can help shepherd (municipal leaders, state legislators who sponsored state PACE enabling legislation).
Call information: July 14th, 1PM EST Toll-free: 866-506-1209/ Participant: 7183152# RSVP to PACEcallin@gmail.com
Date: July 8, 2010
To: PACE Stakeholders
RE: PACE Legislation Conference Call So our Nation’s PACE Programs Can Proceed!
Conference Call Information: July 14th, 1PM EST. Toll-free: 866-506-1209/ Participant: 7183152# RSVP to PACEcallin@gmail.com
We are writing to enlist your support for legislation that will permit our nation’s PACE trials to proceed (click here for description of PACE innovation). Over the past year, due to your support and hard work, 20+ states have passed PACE enabling legislation and a 24 month trial for nationwide PACE programs supported by DOE ARRA funds was set to begin this month. Unfortunately, on July 6th the FHFA and OCC (“The Regulators”), announced their plan to block the trial period for our nation’s PACE programs by both treating PACE financing’s as mortgage defaults and by red lining PACE communities with additional borrower requirements that would be prohibitively costly (link to FHFA announcement & OCC announcement). As Governor Schwarzenegger points out, this action by the Regulators also challenges the 100+ year history of tax assessments being managed by local government (link to Governor Schwarzenegger letter).
The veto by the Regulators is very surprising as this was a trial period, which was designed by DOE, HUD, NEC and CEQ, and was the means to test PACE and its benefits. Moreover, the Regulators could block PACE at the end of the trial period if the results proved unsatisfactory. The Regulator criticisms of PACE consisted of the senior lien status of PACE and a number of old concerns that were solved by a White House led inter-agency task force (and which FHFA provided feedback to). The Regulators also ignored specific proposals made over the last few weeks to the FHFA’s general counsel, Alfred Pollard, from senior administration officials and PACE stakeholders. Put simply, the Regulators ignored the immateriality of the risk given the safeguards that were developed (click here for White House PACE Best Practice requirements) and the fact that that this was designed specifically as a 24 month trial period – yes a trial period that they retained the full power to stop at the end. Listed below in Item 1 is a chronology of the FHFA/OCC concerns and how they were either solved or proposed to be solved (see Item 3 below for regulators who supported the PACE veto).
Our nation’s leadership wrote to the FHFA to permit these programs to proceed so we could gather the necessary data on this innovation and determine the benefits to homeowners, lenders, job creation and energy security (see below Item 2 list of 50 of our nation’s political leaders who wrote to the FHFA). Unfortunately, due to scars from the sub-prime crisis, the banking regulators did not focus on the facts. Instead, they chose to raise the fear associated with our nation’s mortgage crisis in an attempt to block a program that has the potential to benefit all stakeholders – and that they could have curtailed if the trial proved unsuccessful.
We encourage you to work aggressively with us on legislation so the PACE can proceed as planned by the DOE, HUD, NEC and CEQ. These nationwide trials will provide the necessary data to determine if PACE can accelerate the much needed retrofit of our nation’s built environment without harming stakeholders, as the PACE supporters believe.
For municipal supporters of PACE we will have a draft of a sign on letter that will be sent to congressional leadership ready for distribution shortly.
Thank you for your continued work on this important initiative. We have made great strides over the last year and the legislative cure is the final hurdle to unlock the potential of retrofitting our nation’s homes and buildings.
Item 1: Chronology of Regulator Critique of PACE and Solutions Developed Yet Ignored by FHFA/OCC:
- Regulator Critique 1: “PACE does not have ample protections for consumers and lenders and needs more safety and soundness data”
1. White House Inter-Agency Task Force develops consumer and lender protections (click here for White House Best Practice Consumer/Lender protections)
2. Safety and soundness protections developed above and requirement for trial period data to review success of safety and soundness (click here for June 8th letter discussing safety and soundness – see items 5 & 6)
- Regulator Critique 2: “PACE will be bad for existing mortgage lenders because PACE is a senior lien”
- Solution: Two improvements were made to the nationwide standard to improve homeowner cash flow/reduce potential risk to below $200 per home:
1. PACE financed retrofits would target cash flow positive/reduce mortgage delinquencies – The Administration agreed to require that homeowners only do retrofits where the savings in year 1 would exceed the annual assessment – such that the homeowner’s cash flow would improve and the risk of mortgage default would go down. Note: Sonoma county, the largest PACE county in our nation, is experiencing tax delinquencies on PACE homes that is 60% below non-PACE homes – a testament to the potential of PACE to benefit all stakeholders, including existing mortgage lenders.
2. PACE senior lien status limited to past due payments – One of the biggest criticisms from FHFA was that in a foreclosure the PACE lien gets paid before the mortgage. This risk was cured by requiring that PACE programs only permit past due PACE payments when a home is in foreclosure (typically 1 year of payments out of a total of 15 years) to be paid senior to the existing mortgage. The remaining PACE balance and future payments would be assumed by the new home purchaser. This modification reduced PACE senior lien exposure from the full balance of the retrofit (approximately $15,000 on average) to only the delinquent back payment (approximately $1,500). The $1,500 of potential senior lien risk is further reduced by fact that mortgage defaults range from 5% to 10% so that the potential exposure would be $75-$150 per PACE home.
- Regulator Critique 3: “The PACE trials are too broad”
- Solution: FHFA/OCC were offered a cap on the PACE trial of 270,000 homes nationwide (see letter to Alfred Pollard, FHFA, with cap proposal – see section 2 – II). FHFA never responded to this offer.
- Regulator Critique 4: “We need a debt to income test”
- Solution: The cash flow positive requirement alleviated the need for a debt to income test but when the Regulators continued to insist, FHFA/OCC were offered a debt to income test but never responded but instead argued in the July 6th letter there were no debt tests (see letter to Alfred Pollard with Debt to Income test proposal – see section 2 – III).
- Regulator Critique 5: “We need truth in lending disclosures”
- Solution: FHFA/OCC were offered Truth in Lending disclosures but never responded and again argued in the July 6th letter that truth in lending was a problem (see attached letter to Alfred Pollard – see section 2 – V)
- Regulator Critique 6: “PACE assessments are unusual and will challenge lenders, servicers, and mortgage investors”.
- Solution: Created a trial period and capped total number of homes. FHFA/OCC never responded. In addition, there are 37,000 assessment districts where homeowners, lenders, servicers and mortgage investors deal with assessments (for sewers, common sidewalks, etc….). See Paul Hastings legal opinion on PACE assessment districts (link here). Finally, given that PACE in the trial stage is immaterial, mortgage investors have had no issue with it (note: a number of mortgage backed deals have been successfully issued with PACE disclosures).
Item 2: Political leaders who have written to FHFA so that our nation’s PACE trials can proceed:
To see actual letters click here and go to section 7A (link)
Senators: Mark Begich (AK), Michael Bennet (CO), Jeff Bingaman (NM), Russ Feingold (WI), Kirsten Gillibrand (NY), Mary Landrieu (LA), Jeff Merkley (OR), Bernard Sanders (VT), Charles Schumer (NY), Jeanne Shaheen (NH), Tom Udall (NM), Mark Warner (VA), Ron Wyden (OR)
Members of Congress: Tammy Baldwin (WI), Timothy Bishop (NY), Earl Blumenauer (OR), Russ Carnahan (MI), Gerry Connolly (VA), Bob Filner (CA), Barney Frank (MA), Gabrielle Giffords (AZ), John Hall (NY), Martin Heinrich (NM), Maurice Hinchey (NY), Rush Holt (NJ), Mike Honda (CA), Jay Inslee (WA), Steve Israel (NY), Peter King (NY), Barbara Lee (CA), Zoe Lofgren (CA), Ben Ray Lujan (NM), Betsy Markey (CO), Jim McDermott (WA), Bill Pascrell, Jr. (NJ), Tom Perriello (VA), Jared Polis (CO), Tim Ryan (OH), John Salazar (CO), John Sarbanes (MD), Jackie Speier (CA), Betty Sutton (OH), Paul Tonko (NY), Chris Van Hollen (MD), Henry Waxman (CA)
Governors & Mayors: Governor’s Richardson (NM), Ritter (CO), Schwarzenegger (CA); Mayor’s Bloomberg (NYC), Newsom (SF)
Attorney Generals: Edmund Brown (CA)
Item 3: Regulators who supported PACE block:
- Alfred Pollard, General Counsel, FHFA email@example.com (202) 414-3788
Edward DeMarco, Acting Director, FHFA Director@FHFA.gov (202) 414-6923
· Mario Ugoletti, Deputy Director, Office of Financial Institutions Policy, FHFA firstname.lastname@example.org (866) 796-5595
· Marianne Sullivan, Senior Vice President, Single-Family Chief Risk Officer, Fannie Mae email@example.com (202) 752-7000
· John Forlines, Vice President for Credit Risk Management, Fannie Mae John_Forlines@fanniemae.com (202) 752-7000
· Pam Holland, Legal, Fannie Mae firstname.lastname@example.org (202) 752-7000
· Marvin Shaw, Senior Attorney, Office of Thrift Supervision email@example.com (202) 906-6639
· Patricia McClung, Vice President, Offerings Management/Affordable Lending, Freddie Mac firstname.lastname@example.org (571) 382-4400
· Lisa Ledbetter, Legal, Freddie Mac Lisa_ledbetter@freddiemac.com (703) 903-2000
· Joseph A. Smith, Group Leader, Retail Credit Division, Office of the Comptroller of the Currency (202) 874-5170 email@example.com
· Timothy W. Long, Senior Deputy Comptroller for Bank Supervision Policy and Chief National Bank Examiner, Office of the Comptroller of the Currency (202) 874-2870 firstname.lastname@example.org
· Suzy Gardner, Senior Examination Specialist, FDIC BGardner@FDIC.gov (202) 898-3640
· Virginia Gibbs, Senior Supervisory Financial Analyst, Federal Reserve Board email@example.com (202) 452-2521
· Susan Eckert, Director, Retail Credit Policy, Office of the Comptroller of the Currency firstname.lastname@example.org (202) 874-5170