HUD To Restrict PACE Loans To Second-Lien Status

Posted by Patrick Barnard on August 24, 2015 No Comments
Categories : Residential Mortgage

The U.S. Department of Housing and Urban Development (HUD) is proposing a policy change wherein loans backed by the Federal Housing Administration (FHA) will always take first-lien status over Property Assessed Clean Energy (PACE) loans, which are used for residential solar installations and other energy-efficiency projects.

The policy change means PACE loans can no longer qualify for first-lien status when a homeowner defaults on his FHA-backed mortgage.

PACE loans allow homeowners to benefit from home energy improvements immediately and spread the cost over time. When the property is sold, the PACE loan remains with the property and the next owner is responsible for repaying the loan.

The policy change also means lenders can better evaluate the conditions under which borrowers are purchasing and refinancing properties with PACE loans, HUD says in a release.

In addition to requiring that liens for PACE loans take second-lien status, the proposed policy requires that PACE assessments be performed on a fixed-rate and fixed repayment schedule; that assessments be recorded and identifiable to the lender; and that assessments be attached only to single-family properties, as defined by the FHA, which are one- to four-unit dwellings.

In related news, the FHA has announced a new partnership with the Department of Energy (DOE) that will incorporate the use of the DOE's Home Energy Score with the FHA's Energy Efficient Home (EEH) program. The goal is to provide potential homeowners with an easy way to measure the energy efficiency of their homes and to benefit from the associated cost savings, the agencies say in a release.

As per the partnership, the FHA will provide flexible underwriting to recognize the reduced costs of utilities when those costs are established with the DOE's Home Energy Score, which rates home efficiency on a scale of one to 10.

Home buyers or homeowners who wish to obtain an FHA-insured purchase or refinance mortgage for a single-family home that receives a Home Energy Score of six or higher will be eligible to increase their income qualifying ratio by 2% above the standard single-family limit, according to HUD's release.

The changes are being introduced as part of the White House's National Clean Energy Summit. The Obama administration and the FHA have announced their intent to issue a set of guidelines supporting borrowers seeking to make energy-efficient improvements to their homes.

The goal is to make it easier for borrowers to use single-family FHA financing for properties with existing PACE loans that meet certain conditions.

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