FHA to stop insuring mortgages with PACE loans


In a move the housing industry deems a victory, the U.S. Federal Housing Administration will no longer insure mortgages on homes that also carry liens by the Property Assessed Clean Energy program, PACE.

When the Obama administration decided to allow the FHA to insure homes that also carry PACE liens last year, several key trade groups in the housing industry voiced concern. A coalition that included the Mortgage Bankers Association and the National Association of Realtors urged the FHA and the U.S. Department of Housing and Urban Development to reconsider the shift. They are now pleased with the Trump administration’s reversal on the PACE rules.

With high interest rates, PACE assessments could be used in a predatory way, targeting homeowners who didn’t understand what they were accepting. These loans took priority over the mortgage on a home, drawing heavy criticism. Housing and Urban Development Sec. Ben Carson pointed to this fact when explaining the move by FHA.

“FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default,” announced Carson. “Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer’s ability to repay, or when they attempt to refinance their mortgage or sell their home.”

Renovate America, the country’s largest provider of PACE loans, cited consumer protection laws passed in California and hinted that the FHA change might have limited impact on the PACE market.

“The rates of PACE homes’ tax and mortgage delinquencies do not exceed that of other homes in PACE markets,” Renovate America said in a statement, according to MarketWatch. “The PACE industry will continue to work with local, state, and federal policymakers to offer a voluntary option for homeowners to help reduce energy consumption, reduce greenhouse gas emissions, create clean energy jobs in local communities, and improve and modernize our housing sector — with robust consumer protections.”

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