Consumers need adequate protections when it comes to federal guidance regarding Property Assessed Clean Energy (PACE) loans, CUNA and other trade organizations wrote Tuesday. CUNA wrote to Department of Housing and Urban Development (HUD) and Department of Veterans Affairs (VA) leadership to express concerns with July PACE guidance issued by the VA and by HUD on behalf of the Federal Housing Administration (FHA).
“We urge you to suspend the applicability of the proposed FHA and VA PACE guidelines and issue the proposal for notice and comment so that lenders, borrowers, home improvement providers and others may be given the opportunity to comment and assist the departments in establishing policies that better protect consumers, lenders and taxpayers,” the letter reads.
PACE varies from state to state, but generally allows homeowners to finance energy efficiency improvements for up to 20 yearswith payments made through assessments attached to the property. This allows the homeowners to benefit from the improvements immediately while spreading the cost out over time.
In some states, when the property is sold, the PACE loan remains with the property, and the new owner becomes responsible for the loan.
The guidance allows for approval of mortgages for the purchase or refinance of property with PACE obligations, provided they meet certain requirements. Prior policy barred the financing or refinancing of a home unless the property was free and clear of any liens other than the FHA-insured or VA-guaranteed mortgage.
Because PACE obligations are collected through property tax payments, the prior policy was designed to ensure that obligations like a PACE “super lien” would not erode the value of the collateral in the event of foreclosure or the sale of the property.
“Allowing any PACE loan amount to hold a senior priority undermines the lender’s (and the government’s) collateral position and disrupts the very nature of secured lending,” the joint letter reads.