July 7, 2010
Dark Days For San Francisco's GreenFinanceSF (Solar) Program
"San Francisco's new, $150 million [GreenFinanceSF] program to help property owners finance solar and other energy-saving programs is all but dead, according to city officials, after a federal agency announced Tuesday that the program and others like it across the state are potentially risky and inadvisable for mortgage lenders."
"The problem, according to the Federal Housing Finance Agency, is that the local loans attach to the properties as liens if they are not paid off and those liens, because they are property taxes, trump banks for who gets paid back first from proceeds of a foreclosed home. In a housing market that is - at best - recovering, the risk of home loan defaults remains high and lenders do not want to risk losing more money."
First Published: July 7, 2010 8:30 AM
Comments from "Plugged In" Readers
How much did SF spend developing this program? Did anyone bother to consult with the FHFA?
Posted by: Michael at July 7, 2010 4:02 PM
They didn't spend very much of anything. A company called Renewable Funding (http://www.renewfund.com/) fronts most of the cost of setting these PACE programs up, and takes the risk if they don't work out. If they work, RF makes money with a "transaction fee" on each loan, which is part of the closing costs.
As for anticipating this, nobody in the industry suspected this is where the problems would come down -- and there's lots of really smart people in that space. The expectation was that there would be local snags, not federal. Consulting with the FHFA was the responsibility of RF, and yes, they did. This is an example of lining up all your ducks over many years, then having one of them unexpectedly topple over at the last minute.
I know that SF messes up things a lot, but in this case, they did the right thing, didn't spend much money, and didn't shoulder any risk. The costs can probably be measured in fractions of time spent by a handful of people in the SF Dept of the Environment. The real cost is borne by RF -- a company with a very uncertain future now.
(Full disclosure: I know one of the founders of RF).
Posted by: Kurt Brown at July 7, 2010 9:35 PM
Wow Kurt, thanks for the insight. While it is great that SF is protected in this snafu, too bad about RF.
What a shame that the entrenched old banks have skillfully employed the government to backstop their risky decisions. But Renewable Funding, which sounds like a specialized small upstart bank, gets stuck holding the bag. And ironically it is the big banks that passed the bag to RF.
Or maybe this is just another ploy by the big banks to pressure the government to backstop RF and open a new siphon.
Posted by: The Milkshake of Despair at July 7, 2010 11:27 PM
I know founders from two different startups in the area and none of them really understand why this happened. It's quite opaque. The meetings were not open. And while RF isn't laying off people yet as far as I know, the other startup I know has told everyone to look for new jobs, and it's rippling thru energy efficiency and renewable energy providers as well -- Recurve, an SF-based energy auditing and analysis company has had to lay off a good chunk people, since they were counting on business from these PACE programs.
The strange thing to me is, the premise of the FHFA's objection is clearly not supported by the evidence of the nearly 1,000 or so existing pace loans, as well as homes with energy efficient and renewable energy retrofits -- the data show buyers will pay more for these homes. The recession doesn't seem to have changed this.
IMHO, FHFA/Fannie/Freddie are acting like Chicken Littles now. A little late for that, probably. The sky has already fallen.
Posted by: Kurt Brown at July 8, 2010 3:29 AM
PS Full disclosure #2: I was actually never a fan of these PACE programs, not for the reasons the FHFA states -- I think they're bonkers.
I never thought they were a good idea because in practice, after all the costs of aggregating these loans into "bondable" amounts, plus the transaction costs for the providers like RF and all the intermediaries end up with the result that the resulting interest rate isn't all that attractive when compared to more traditional home equity financing. This is what happened in Berkeley, the pioneering program. Only 7 people eventually took part in the pilot because the interest rate wasn't all that attractive.
And there's other ways to finance besides home equity loans, like www.sunrun.com for example. Sunrun has already raised twice as much money for financing residential solar electric systems ($300M) as the US Government was allocating to jump start PACE programs nationwide ($150M).
So while I mourn for my friends in these startups and I wished them success, I never thought PACE was all that great of an idea.
Posted by: Kurt Brown at July 8, 2010 3:37 AM