Trade Associations Seek Suspension of PACE Guidance
Tuesday, September 20, 2016
As mentioned in last month's CLTA eNews, the FHA and eleven trade associations, including the American Land Title Association, sent a letter urging the Department of Housing and Urban Development and Department of Veterans Affairs to suspend their recently revised guidance on Property Assessed Clean Energy loans. The letter cited lending and consumer protection concerns. The new HUD-VA guidance, issued in July, allows for the approval of mortgages for the purchase or refinance of properties with PACE obligations provided that certain requirements are met. One requirement is that delinquent PACE loan amounts retain a first-lien position, which has raised industry concerns.
The associations noted that the new guidance declares that a PACE loan structured as a tax assessment is not a super lien. They consider this a “form over substance evasion that fails to protect the FHA Mutual Mortgage Insurance Fund and the VA loan guaranty program.
PACE financing has been conveniently classified by FHA and VA as a tax assessment rather than a loan. A PACE loan is still a financial obligation that can negatively affect one’s mortgage repayment ability although not typically accompanied by federal Consumer Financial Protection Bureau disclosures and protections associated with home mortgages. Borrowers may not fully understand the consequences of assuming an increased financial obligation on their tax bill.
The letter also noted that many subsequent purchasers of property with PACE loan obligations attached require that the seller extinguish these loans before they purchase the property. This leaves the original borrowers with a surprise at closing and far less in sale proceeds.