As the Obama administration announced the Clean Energy Savings for All Initiative – a cross-government partnership aimed at promoting energy efficiency and increasing access to solar energy, particularly for low- and moderate-income families – several agencies released new guidance on Property-Assessed Clean Energy loans. PACE loans provide homeowners a way to have their homes undergo energy-efficient retrofitting financed through property tax assessments.
ABA and the Federal Housing Finance Agency have previously raised concerns about PACE programs – which are currently operated in 30 states – where the PACE lien is allowed priority over the first mortgage lien. FHFA has prohibited Fannie Mae and Freddie Mac from purchasing loans with PACE liens which take precedence over the first mortgage, citing concerns about taxpayer risk.
The guidance issued by the Federal Housing Administration allows for the approval of mortgage and refinance applications for properties with PACE obligations, provided they meet certain requirements. The Department of Veterans Affairs also published guidance to clarify the circumstances under which veterans can take advantage of PACE programs in conjunction with its VA Home Loan Guaranty, and the Department of Energy released updated best practices for residential PACE financing. Among the requirements in the new guidance is the stipulation that the PACE assessment does not take first lien position ahead of the mortgage. However, the guidance does provide that for delinquent or foreclosed loans, PACE loans will retain a first-lien position.
ABA has concerns about the implications of allowing any PACE loan to take a first lien position. Doing so may be harmful to borrowers and lenders who rely on the certainty of the first lien position on mortgages for affordable financing, and it may harm taxpayers by weakening the FHA and VA portfolios. ABA will review the proposal in more detail in the coming days.