The Federal Housing Administration (FHA) announced Thursday it will no longer insure new mortgages on properties that include Property Assessed Clean Energy (PACE) assessments, a victory for credit union mortgage lenders.
PACE loans offer financing for energy efficiency upgrades, but can cause serious problems because they are recorded as property tax assessments, superior to an underlying mortgage, thus encumbering a credit union’s interest in a property in case of default.
Additionally, although they are secured by real property, PACE loans are not subject to the same underwriting and consumer disclosure standards as real mortgages, thereby subjecting consumers to potential abuse.
“CUNA applauds FHA for recognizing the problems PACE loans present for mortgage lenders. This decision is a win for credit unions that are exposed to additional risk on properties with such loans,” said CUNA Chief Advocacy Officer Ryan Donovan. “We will continue to advocate on behalf of credit unions around the country at a federal level for appropriate underwriting and consumer disclosures for PACE loans, and at a state level to ensure they are recorded appropriately, subordinate to the underlying mortgage.”
The CUNA-supported Senate Regulatory Relief bill, S. 2155, includes a provision which would subject PACE loans to similar consumer disclosures as home mortgages.
The FHA’s decision Thursday reverses a policy announced in July 2016. According to FHA, it “can no longer tolerate” the risk to taxpayers by allowing PACE obligations to be placed ahead of a mortgage in the event of a default.