Today the Federal Housing Administration (FHA) and Department of Veteran’s Affairs (VA) announced changes to the treatment of Property Assessed Clean Energy (PACE) loans. This new guidance, which goes into effect immediately, states that PACE loans will remain in a subordinated position on most FHA mortgages, in line with long-standing guidance from the Federal Housing Finance Agency. The VA, which is issuing guidance on PACE loans for the first time, is taking the same position regarding lien position.
However, the guidance also notes that PACE loans will retain a first-lien position for delinquent PACE obligations or foreclosed properties. NAR President Tom Salomone issued the following statement in response:
Realtors® supports incentive-based financing programs that allow homeowners to improve the energy efficiency of their homes and reduce their energy costs.
However, NAR is concerned that, by putting PACE loans in a primary lien position, fewer homeowners will be able to take advantage of the benefits of this program, and may also make it more difficult for distressed homeowners to refinance their mortgage outside of the FHA or VA. Should that happen, a foreclosed property with a PACE loan in the primary position will likely remain on the market longer than it should, further increasing uncertainty in mortgage markets and placing unnecessary pressure on homeowners.
We’re already experiencing tight lending standards that keep qualified buyers out of the market, and today’s announcement gives lenders another reason to withhold mortgage credit on otherwise desirable properties. That will only make it harder for buyers to find affordable homes in a time of limited inventory and rising prices.
NAR believes in the need to maintain and strengthen mortgage markets while supporting energy efficiency and lower utility costs, and we look forward to continuing that dialogue with FHA.
We strongly urge FHA and VA to reconsider their policy and will work with our partners across the industry to make the case for changes.