The Federal Housing Administration (FHA) is ceasing to insure mortgages on homes participating in the Property Assessed Clean Energy (PACE) program, the U.S. Department of Housing and Urban Development (HUD) recently announced. Through the program, homeowners can finance energy-efficient home improvements, repaid through an assessment on their property tax bill.
According to HUD, the change is an effort to guard the FHA’s Mutual Mortgage Insurance Fund (MMIF), as well as homeowners and property owners.
“FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default,” said HUD Secretary Ben Carson in a statement. “Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer’s ability to repay, or when they attempt to refinance their mortgage or sell their home.”
HUD announced the change in a letter to mortgagees. View the letter.
The industry largely praised the move.
“FHA’s PACE announcement is a smart step that will protect taxpayers and strengthen the overall program for homebuyers,” said National Association of REALTORS® (NAR) President Elizabeth Mendenhall in a statement., “NAR supports voluntary, incentive-based programs that encourage homeowners to make their property more energy-efficient, but not at the expense of FHA or the strength of its portfolio. NAR pushed for this change and we applaud the FHA’s attention to the issue.”
“MBA applauds HUD’s announcement and fully supports these reforms,” said David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA), in a statement. “PACE liens pose a real danger to secured lenders and to the MMI Fund because they erode the underlying collateral due to their priority lien position in the event of default. HUD’s actions…will help protect taxpayers and the FHA insurance fund, and will align FHA policy with that of Fannie Mae and Freddie Mac.
“However, consumers should still be very wary of these dangerous loans, which are not yet subject to important federal consumer protection laws,” Stevens said. “In addition, consumers need to understand that PACE loans can significantly hinder their ability to later sell their house.”
NAR addressed also, the dangers of financing through PACE in a recent issue of RISMedia’s Real Estate magazine.
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