09/13/2012 12:29 pm ET Updated Nov 13, 2012

Fumbling Federal Agency Slows the PACE of Energy Efficiency

Talk about the left hand not caring what the right hand is doing.

One hand of the government hit upon a nifty method for helping homeowners finance home energy efficiency improvements. Another hand of the government has squashed said nifty method.

Unfortunately, the squashing hand is not showing any signs of relenting.

Here's the scoop: 27 states and the District of Columbia allow local governments to use special assessments as a tool for financing home efficiency upgrades. The tool is called Property Assessed Clean Energy, or PACE for short.

Special assessments are common. Local governments have used them since the 18th century to pay for everything from sewers to sidewalks.

The PACE idea is simple. Local governments pay for installation of home insulation, sealing, high-efficiency windows, and other improvements. Homeowners pay back the financing through their property taxes.

If the home is sold, the new owner takes on the repayment obligation, which stays with the property, like other assessments such as those financing streetlights or mosquito control.

It's a good deal. Efficiency upgrades create jobs for local tradesmen. Homeowners enjoy lower utility bills and greater home comfort. Less energy waste reduces pollution and strengthens energy security.

Two years ago, however, a ham-fisted federal agency stopped PACE dead in its tracks. The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, ordered the two mortgage underwriters to stop buying loans for houses that have PACE liens.

FHFA asserted the PACE assessments are loans and raised concerns the assessments would be paid off ahead of a Fannie or Freddie mortgage, increasing the housing agencies' financial risks.

Ridiculous, says Congresswoman Nan Hayworth, the New York Republican who last year introduced bipartisan legislation, H.R. 2599, to stop the federal housing giants' misguided attack on energy efficiency.

Fears of financial risk are a red herring. Hayworth has pointed out that PACE homes have lower delinquencies than non-PACE homes in areas where PACE is available.

Her bill would forbid the housing giants from interfering with the authority of local governments to use special assessments as a way to serve their constituents. It also lists underwriting standards for PACE assessments in order to minimize financial risks to Fannie and Freddie.

Unfortunately, FHFA is not listening. It proposed a rule earlier this summer that essentially would keep its boot on local governments' necks. The proposed rule would forbid purchase of mortgages on properties that have PACE liens.

FHFA's proposal is an overreach that would block energy efficiency investments that save money, create jobs, and protect the environment. It would stick a big federal nose into local government business.

The agency should back off and issue a revised proposal allowing Fannie and Freddie to buy loans for homes that have PACE liens meeting the underwriting standards Hayworth spelled out in her bill. If the agency won't budge, Congress should force the issue by passing Hayworth's legislation.

Energy efficiency is vital for strengthening America's economy and protecting its environment. The FHFA should get with the program or get out of the way.