Fannie Mae has been taking some very peculiar actions against homeowners lately. First, it decided to crack down on strategic defaulters. Now, we learn that it (along with Freddie) is threatening not to accept loans if the associated borrowers retrofit their homes with solar panels through a government stimulus program. This might seem odd, especially if you consider another strange action on the part of Fannie that we learned about back in May.
But before getting to that, a better explanation of the situation is warranted. Here's how the New York Times explains the program in question:
Under the financing programs, a local government borrows money through bonds or other means, and then uses it to make loans to homeowners to cover the upfront costs of solar installations or other energy improvements. Each owner repays the loan over 20 years through a special property tax assessment, which stays with the home even if it is sold.
Is there any reasonable explanation to why Fannie might not want to guarantee homes with solar panels under this program? Here's its rationale from the Times:
They are worried that taxpayers will end up as losers if a homeowner defaults on a mortgage on a home that uses such creative financing. Typically, property taxes must be paid first from any proceeds on a foreclosed home.
Right, because Fannie and Freddie were so worried about making taxpayers losers when they backed thousands of bad mortgages during the housing boom. There is some logic there, but shouldn't the value of the home ultimately be higher than the cost associated with the lien resulting from the solar panel loan? Considering that a government subsidy is involved, you certainly would think that the value the solar panels add to the home would exceed the balance of the associated lien.
Sometimes when a firm does something strange, it can be useful to consider it in context with other unusual behavior on its part. In May, there was another odd news story related to Fannie and energy. At that time, we learned that the company had obtained a patent on a residential emissions trading platform. I wondered whether or not the government-sponsored entity might be planning to develop some sort of market to capitalize on the carbon emissions of the homes it guarantees.
Fannie's intent is not entirely clear from the patent. If it did want to sell carbon credits to homes that use more carbon, then it's easy to see why it would hate solar panels. They would provide homes with clean, renewable energy, which would cut down on their carbon footprint. Fannie, consequently, would earn less profit from the endeavor.
But if Fannie wanted to instead sell credits from energy reducing homes in its portfolio, then wouldn't it want as many solar panels as possible? Then, these homes will be lower carbon users than average, and credits would result. Presumably, if Fannie sells that credit to a polluter, it would get a cut for acting as the middle man and mortgage guarantor.
In a climate bill floating around in Congress sponsored by Sen. Dick Lugar (R-IN), new efficiency standards for residential buildings could be created. This would greatly assist the creation of a residential cap and trade market. So Fannie's idea isn't as far-fetched as it may sound. (Thanks to my colleague Nicole Allan for bringing this legislation to my attention.)
But don't get me wrong: Fannie may never end up doing anything with the residential carbon trading platform it patented. Yet depending on how the firm intended to use the system, solar panels on the homes in its portfolio could affect how much profit it could derive from the new market it would create. When contacted, Fannie chose not to provide a comment on the potential connection between its policy on liens related to solar panels and its residential carbon emissions patent.
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