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May 27,zOtO

M a r i a n n eE .S u l l i v a n
SeniorVicePresident
SingleFamilyChiefRiskOfficer
F a n n i eM a e

Via emailto resourcecenter@fanniemae.com

RE PACELenderLetterDatedMay 5, 2010

D e a rM s .S u l l i v a n :

Thisletter is in responseto the LenderLetterreferencedabove.Firstlet me saythat I

completelyunderstandthat lien priorityis a cornerstoneof the secondarymortgagemarket,
and that this is an essentialpointwhichallowscompetitiveand relativelylow mortgageratesto
homeowners.lt is alsoin part this pointwhich resultsin a very low delinquencyrate of property
taxes,sinceoverduepropertytaxescan resultin a lienbeingfiled on the property,which
triggersa defaultunderthe terms of the mortgage.Thus,the requirementthat a first mortgage
in fact be "prime" has resultedin a very efficientsecondarymortgagemarketfor home
mortgages.

At the sametime, PACElendersalsowant that primacyof lienso that they too canoffer
affordableinterestratesto participants
and meetthe publicpolicyobjectivesof allowinga
propertyowner to matchthe costsand benefitsof energyefficientimprovementsthrough
financing.

GreenOaksuggests that FannieMae maywant to considerthe followingpositionto balance

thesevery importantyet apparentlycompetinginterests:

t. The FannieMae/FreddieMac UniformSecurityInstruments will continueto prohibit

loansthat havea seniorlienstatusto a mortgage.
2. PACEassessments which meet certaincriteriawill not run afoulof Point#1. These
criteriashouldbe in state,not locallaw,sinceFannieMae cannotmonitorthe
provisionsand legalpositionsof an infinitenumberof PACEprograms.
3. Stateswhichwishto havePACEprogramswhichwill not interferewith the abilityof
residentialmortgagelendersto participatein the secondarymortgagemarketshoulddo
the following:
a. Removereferenceto seniorliensin their energydistrictsand/orspecial
assessment districts.
b. Providethat PACEprogramsshallhavethe samelegalstatusas property
taxesin termsof collection. The resultof this shouldbe that in the eventof
nonpayment, the localgovernmentmay file a lienon the property,in which

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 casea noticeis sentto the lenderof record,and the propertyowner will be
requiredto cure the defaultto avoidtriggeringa defaultunder its mortgage
c. In the eventof default,only the pastdue paymentsand any interestand
penaltiesare requiredto curethe default,just as with an overdueproperty
tax. In other words,no acceleration is allowed.
d. Additionally, statelawsshouldprovidefor certainrestrictions on PACE
fundingto providefor certainminimalprotectionsfor the consumerand the
secondarymortgagemarket:
a. Non-acceleration in the eventof default(seeabove).
b. PACEfinancingmay not exceedLO%of the assessed valueof the
property.
c. PACEfinancing+ existingmortgagedebt may not exceedthe
assessed valueof the property(equityrequirement).
d. An energyaudit is requiredfor PACEfinancing.
e. A third partyanalysisshowingthat the projectedenergysavings
from the improvementsmust be equalto or greaterthan the annual
costof the specialassessment.
f. Existinglendersmust be advisedof the specialassessment so that
any escrowfor propertytaxescan be adjustedto coverthe cost of
the specialassessment.
g. The propertyowner must be advisedthat non-paymentof PACE
fundingcouldresultin a lien,just as with a propertytax, and this
couldresultin a defaultunderany mortgageon the property.

The resultof the aboveshouldresultin a standardizationof PACElawsacrossthe country,but in

the interimFannieMae cancontinueto acceptinto the secondarymortgagemarketsloanson a
state by state basisas state lawscome into conformancewith the aboveguidelines.

An affirmativestatementthat the aboveparameters(or similaras seenfit by FannieMae)would

removethe cloudfrom the developmentof the nascentPACEinitiative,as well as providingfor
the continuedlien priorityfor residential
mortgages.

I would be happyto discuss

the abovewith you. Thankyou for givingseriousconsideration
to
the above.

Ann C. Gbggin
President
GreenOak Funding,LLC

Cc: G l e nB r a n d

GreenOakFundingLLCprovidesconsultingservicesto stote andlocalgovernments

for settingup
andimplementingPACEprogromsGreenOakdoesnot providelegoladvice.
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