PACE Loans Face New Mortgage Requirements


The Federal Housing Finance Agency (FHFA) has issued a statement concluding that property-assessed clean energy liens, an increasingly popular residential solar finance mechanism, present ‘significant safety and soundness concerns’ that must be addressed by Fannie Mae, Freddie Mac and the Federal Home Loan Banks – all of which are overseen by the FHFA.

Under most of PACE programs, such loans acquire a priority lien over existing mortgages, though certain states have chosen not to adopt such priority positions for their loans. First liens established by PACE loans are unlike routine tax assessments and pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors, according to the FHFA.

FHFA has urged state and local governments to reconsider these programs and continues to call for a pause in such programs so that concerns can be addressed. Specifically, the FHFA is directing Fannie Mae, Freddie Mac and the Federal Home Loan Banks to undertake the following prudential actions:

– For any homeowner who obtained a PACE or PACE-like loan with a priority first lien prior to this date, FHFA is directing Fannie Mae and Freddie Mac to waive their Uniform Security Instrument prohibitions against such senior liens.

– In addressing PACE programs with first liens, Fannie Mae and Freddie Mac should undertake actions that protect their safe and sound operations. These include, but are not limited to, adjusting loan-to-value ratios to reflect the maximum permissible PACE loan amount available to borrowers in PACE jurisdictions; ensuring that loan covenants require approval/consent for any PACE loan; tightening borrower debt-to-income ratios to account for additional obligations associated with possible future PACE loans; and ensuring that mortgages on properties in a jurisdiction offering PACE-like programs satisfy all applicable federal and state lending regulations and guidance. Fannie Mae and Freddie Mac should issue additional guidance as needed.

– The Federal Home Loan Banks are directed to review their collateral policies in order to assure that pledged collateral is not adversely affected by energy retrofit programs that include first liens.

For the full statement, click here.


Notify of
Inline Feedbacks
View all comments