The Federal Housing Administration (FHA [1]) on Tuesday announced it will ensure certain mortgages [2] on properties with Property Assessed Clean Energy (PACE) assessments in an effort to offer a range of financing options to homeowners seeking to add clean energy technologies to their homes.
On Tuesday, FHA announced the guidance [2] that outlines circumstances under which it will offer insurance on properties with a PACE assessment. The action announced Tuesday by the FHA is part of a broader effort by the Administration to offer clean energy technologies to every American family that is looking to cut their energy bills by switching to solar energy and making other energy-efficiency improvements.
As part of this effort, FHA will approve purchase and refinance mortgage applications in states that treat PACE obligations as special assessments similar to property taxes, according to the FHA’s announcement.
“Today, we’re seizing the opportunity to shape a cleaner and more sustainable nation,” said Ed Golding, HUD Principal Deputy Assistant Secretary for Housing. “Using PACE, families will be able to make their homes more energy efficient and sustainable in the long run, while still keeping their costs affordable today. As PACE programs continue to develop across the nation, the positive impact on families, jobs, and the environment will only grow.”
According to FHA, PACE has shown promise as an effective way to finance improvements to homes that focus on energy efficiency, renewable energy, and water conservation, among other improvements in such areas as heating and cooling systems, lighting, water pumps, and insulation.
“Today, we’re seizing the opportunity to shape a cleaner and more sustainable nation.”
Ed Golding, HUD
PACE financing pays for these home improvements and is repaid as an assessment added to the property’s tax bill, according to FHA; state and local governments sponsor PACE financing in order to encourage homes to add energy efficiency, which in turn promotes economic development.
While the FHA has announced it will approve some purchase in refinance applications for properties with PACE assessments, the Federal Housing Finance Agency (FHFA) has taken the opposite stance. The FHFA forbids Fannie Mae and Freddie Mac to purchase mortgages with a PACE loan, because the PACE program gives these loans first-lien status. FHFA has warned that programs attaching first-lien status to mortgages backed by Fannie Mae and Freddie Mac will not push the first-lien status of those loans to the secondary position because of the risk they pose to taxpayers while the GSEs are under conservatorship.
The guidance issued by FHA protects the Administration from risk by requiring lenders to escrow PACE assessment payments so that FHA would not be at risk of losing collateral in a tax sale. Also, FHA’s appraisal policy requires that appraisals take the PACE assessment and the value of improvements into account.