FHA to Halt Insuring New Mortgages with PACE Obligations

Filed in Housing Finance by on December 8, 2017 1 Comment

keysOn Dec. 7, the Federal Housing Administration (FHA) issued Mortgagee Letter 2017-18 announcing the agency will no longer insure new mortgages on properties that include Property Assessed Clean Energy (PACE) assessments. This reverses policy announced by the agency in July 2016. The directive applies only to new mortgages and is effective 30 days after the date of announcement.

However, in a press release announcing the decision, HUD noted concerns with PACE obligations on outstanding FHA-insured mortgages. “FHA intends to monitor this carefully to determine whether further action is warranted,” the press release stated.

PACE programs provide home owners financing to make energy-efficient improvements to their homes. PACE programs are available in states that have adopted specific legislation allowing local governments to fund home energy improvements and structure repayment by assessments collected through homeowners’ property tax bills.

The liens generally travel with the property when the home is sold and subsequent home owners continue to pay for the improvements in their tax assessments.

NAHB policy supports using PACE programs to finance energy retrofits as long as the programs do not impair the housing finance system. However, NAHB has expressed concerns about the potential negative impact of properties with first-lien PACE financing that could impair the mortgage lender’s ability to recover the outstanding loan obligation in the event of a default.

For more information, contact Curtis Milton at 800-368-5242 x8597.

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  1. kim shanahan says:

    Baby out with the bathwater because of an inability to work toward a solution.

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