Real Estate Talk: FHA bars solar PACE loans


Realtors praised a recent decision by the Federal Housing Administration to stop insuring new mortgages on homes with a Property Assessed Clean Energy assessment, a type of financing to fund energy-efficient home improvements.

The reversal of policy is a victory for Realtors and consumers who expressed concern that PACE liens would take a first-lien position over FHA in instances of default or foreclosure, undermining the government’s collateral position and disrupting the secured lending process.

Too many borrowers fell for sketchy sales pitches in taking out unaffordable loans for solar panels and other projects. In some instances, contractors misrepresented how the financing worked.
The FHA said PACE loans did not have adequate consumer protection, which put taxpayer funds at risk. It became particularly complicated when a house went into foreclosure. The portion of the PACE loan in arrears had to be paid off first.

Any remaining principal on the loan then transferred to the new buyer.

“Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund,” Housing and Urban Development Secretary Ben Carson said in a statement.
The policy change will impact a relatively small number of borrowers mainly because most do not default on their mortgages, with no distinction in the default rate between borrowers with our without a PACE loan.

Los Angeles, Riverside, San Bernardino, and San Diego counties have approved PACE programs and lenders, which can see loans repaid as part of the annual property tax bill.

In an effort to improved consumer protections, Gov. Jerry Brown in October signed measures that barred kickbacks to contractors who doubled as a salesman along with improved loan underwriting designed to ensure borrowers could afford to repay the loan.

With its Dec. 7 announcement, the FHA joined the Federal Housing Finance Agency, which had barred Fannie Mae and Freddie Mac from purchasing mortgages on homes with PACE loans.

The new prohibition on PACE liens goes into effect for FHA case numbers issued 30 days from the announcement. Mortgages with PACE liens previously insured by FHA will not be adversely affected.

“FHA’s PACE announcement is a smart step that will protect taxpayers and strengthen the overall program for homebuyers” said Elizabeth Mendenhall, 2018 president of the National Association of Realtors.

“We support voluntary, incentive-based programs that encourage owners to make their homes more energy efficient, but not at the expense of FHA or the strength of their portfolio,” she said. “Realtors pushed hard for this change and we applaud FHA’s attention to the issue.”

M. Dean Vincent is the 2018 chairman of the Santa Clarita Valley Division of the 9,800-member Southland Regional Association of Realtors. David Walker, of Walker Associates, co-authors articles for SRAR. The column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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