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Published: Saturday, 9/18/2010

Energy-efficiency home upgradesin limbo after loan program stalls

LOS ANGELES TIMES

LOS ANGELES — A program that allows homeowners to tap low-interest government financing to install solar panels and energy-efficient windows and insulation has stalled, leaving tens of thousands of projects across the country in limbo.

Most local and state governments stopped providing the funds after the Federal Housing Finance Agency said in July that the so-called Property Assessed Clean Energy program posed “unusual and difficult” financial risk, especially in a shaky housing market, and that homeowners who participate in the program may be violating their mortgage terms and face foreclosure.

The quagmire has left many green-oriented home improvement companies in a lurch, causing them to scrap projects that they say could have created thousands of jobs and helped draw investors. Some have simply given up on the program altogether.

“The way it shut down was really painful for us, because we lost a lot of business we had been counting on,” said Matt Golden, president of a contracting company in San Francisco. “We don't have the jobs to put these people to work, and that's a calamity in the long run.”

Homeowners Evelyne Michaut, 36, and Leel Peesapati, 39, had finalized preparations to retrofit their 1950s San Francisco home when the program — and their $50,000 funding package — came to a standstill. They had to scale back plans for a floor heating system, garage-to-attic insulation, and top-notch energy-efficient windows.

They reluctantly settled on the only other financing option they could find: a second mortgage.

“We were counting on the money, but had the rug pulled out from under us,” Peesapati said. “Had we known that this would have fallen through, we would have gone down a completely different path.”

When it was launched, the program was hailed as an innovative way to create jobs and bolster environmentally friendly home improvements.

Vice President Joe Biden heralded the program in April and announced that the federal government would pump $452 million in stimulus funds for eco-friendly building upgrades.

Most of the energy-efficiency upgrades are financed using bonds issued by local governments and are paid back through tax assessments on the property, sometimes over two decades. The liens are attached to the house, not the borrower.

But critics said the program's financing mechanism is better suited for public infrastructure projects that benefit entire communities, such as sewage networks and underground power lines.

Lenders were alarmed by a provision that required that in a foreclosure, the improvement funds would be paid back before a mortgage.

The agency told lenders that they could tighten lending standards for entire communities that continued to sign up for the program, which could require borrowers to make higher down payments and face more difficulty in obtaining a mortgage.

Several lawsuits have been filed against the federal housing agency, and Congress is considering legislation that would force the agency to support the program.



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