FHA to Insure Mortgages on Some Properties with PACE Assessments
The Federal Housing Administration yesterday announced guidance designed to clarify circumstances under which it will insure mortgages on properties that include Property Assessed Clean Energy (PACE) assessments.
But the Mortgage Bankers Association said the guidance program, as designed, could leave FHA borrowers, particularly low- and moderate-income borrowers, without the clarity needed to understand the disclosures. Additionally, MBA said the guidance as written could increase FHA’s loss exposure.
Under the guidance (http://portal.hud.gov/hudportal/documents/huddoc?id=16-11ml.pdf), FHA will now approve purchase and refinance mortgage applications in states that treat PACE obligations as special assessments similar to property taxes. The guidance is part of a larger Administration effort to expand access to clean energy technologies with the option to transition to solar energy and make improvements to their homes to cut their energy bills.
PACE offers ways to finance energy efficiency, renewable energy, water conservation and other resilience upgrades to homes, including new heating and cooling systems, lighting improvements, solar panels, water pumps, and insulation. PACE pays the costs for such enhancements and is repaid through an assessment added to the property’s tax bill.
“Using PACE, families will be able to make their homes more energy efficient and sustainable in the long run, while still keeping their costs affordable today,” said Ed Golding, HUD Principal Deputy Assistant Secretary for Housing. “As PACE programs continue to develop across the nation, the positive impact on families, jobs and the environment will only grow.”
But Pete Mills, MBA Senior Vice President of Residential Policy and Member Engagement, said while MBA and its members believe that energy efficient home improvements provide homeowners with a wide variety of benefits and want to help homeowners safely and sustainably finance these kinds of improvements, the guidance does not provide clarity or homeowner security.
“We are concerned that this program, as designed, would leave low- and moderate-income FHA borrowers more vulnerable to being misled and steered into financial obligations that they may not fully understand due to lack of disclosure,” Mills said. “Further, the program puts taxpayers at risk by effectively making the FHA the guarantor of home improvement loans made by private contractors, thus increasing loss severity for the FHA program if borrowers default.”
Mills noted alternative means to finance energy efficient improvements already exist that don’t pose the same risks to consumers and taxpayers. “MBA urges FHA to solicit and incorporate feedback from the industry to refine their program to better serve and protect consumers and the taxpayers,” he said.
FHA said the new guidance addresses PACE programs where the PACE obligation is treated like a property tax and does not allow the full obligation to have priority or ‘prime’ status over the FHA mortgage lien. By law, FHA cannot accept a first lien PACE structure (except for past due amounts as is the case for all tax assessments). In accordance with existing guidance, lenders would be responsible for escrowing PACE payments as they would property taxes. In addition, purchasers of homes with existing PACE obligations would be responsible for any unpaid balance of the obligation.
