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  • Free Lunches and Foodfights: Fannie and Freddie Say 'No' to Greens

    Fannie Mae and Freddie Mac are not known for overly cautious mortgage financing. To the contrary, their open wallets helped fuel the credit crisis of 2008, and drove the two into federal receivership. To date, taxpayers have paid some $145 billion to keep them afloat, with no end in sight.

    Thus, its rather surprising to see the two in court for being too stingy. But that’s exactly where they are, having been sued earlier this month by California for refusing to finance properties in the federal government’s “Property Assessed Clean Energy,” or PACE, program.  And politicians who control them are lining up to force them to open up their wallets again.

    This Obama-backed program, funded by Washington and administered by state and local governments, provides up-front financing for homeowners to make improvements in their home to increase energy efficency. In return, the property owner pays back the loan over time through a voluntary increase in his or her property taxes.

    In effect, the PACE loans become secured debt, with priority over all other lenders. It didn’t take long for Fannie and Freddie to see — correctly — that this put their own stakes at risk. The two have long required that there be no creditor with priority over them in properties they finance. And, with the two $145 billion in hock, now was not the time to bend the rules.  In May, they said they would not finance mortgages for properties with PACE debt.   This has put the whole PACE program in doubt.

    Thus the California lawsuit, filed by Jerry Brown, which claims that Fannie and Freddie don’t understand the program. At the same time, legislation has been introduced in the House and Senate to force the two to finance PACE-encumbered property.

    Fannie and Freddie should get praise, not subpoenas,  for this decision. Defenders of PACE seem to see it as a classic free lunch:  all meal and no tab. Unlikely as it seems, it took these two firms — once hosts of their own free lunches — to say ‘no’ to this meal.

    The question now is whether they will — or will be allowed to — stand firm. As government-run enterprises, the two are hardly in a position to ignore politics. And its been clear for some time that Fannie and Freddie are viewed as tools of administration policy.   A real food fight may be on the way.

    Heritage Foundation Young Leaders Program member Stefanie Back contributed to the preparation of this piece.

    Posted in Economics [slideshow_deploy]

    3 Responses to Free Lunches and Foodfights: Fannie and Freddie Say 'No' to Greens

    1. Eric, VA says:

      This is completely ridiculous. At what point do we begin to realize that these programs are going to cost us far more than what it appears. So if someone fails to pay their "voluntary" taxes, who forecloses on the house; the state or locality. So now all of the tax payers are out of their money that Fannie and Freddie used to finance the original house before it was retrofitted. Yet again, another well-thought out policy by the Obama administration.

    2. Drew Page, IL says:

      Yes sir, that fiscal restraint Obama promised has once again surfaced.

      And California, once again with its hand out, trying to dip it into the pockets of the taxpaying public of other states. And who better to make the appeal other than good ole Jerry Brown, a guy who just loves to spend other people's money. who knows, it might even buy Jerry a few more votes from the people he wants to spend the money on.

      Damn the Democrats and damn anyone who doesn't stay up all night damning the Democrats.

    3. California solar Eng says:

      I love how you opened the piece- it is hypocritical that they got us into this huge recession and are turning down the first pragmatic solution. Knowing the difference between an investment and a smart one seems like square one- maybe you should go back there Frannie and Freddie.

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