The Federal Housing Finance Agency (FHFA) has issued a notice of proposed rulemaking (NPR) that would prevent Fannie Mae and Freddie Mac from purchasing loans that are subject to liens under the Property Assessed Clean Energy (PACE) program.
‘FHFA, as conservator, has directed Fannie Mae and Freddie Mac not to purchase any mortgage where PACE financing with a priority lien was placed on the underlying property,’ the agency said in a press statement. ‘Such financing moves ahead of the pre-existing first mortgage in lien priority, and thereby subordinates Fannie Mae and Freddie Mac security interests in the property. FHFA took this action based on its determination that PACE financing arrangements present a safety and soundness concern by transferring financial risks to the regulated entities and lacking in adequate consumer protections and standards for energy retrofitting.’
The NPR is required by a preliminary injunction issued by the U.S. District Court for the Northern District of California, which ruled in August 2011 that the FHFA violated the Administrative Procedure Act in its decision to force the government-sponsored enterprises not to purchase residential mortgages with PACE assessments.
The NPR, which is now online, seeks comments on the FHFA's proposed rule as well as on potential alternatives.