While CUNA supports the goal of increasing access to energy efficient housing modifications, the absence of conventional Property Assessed Clean Energy (PACE) loan consumer protections and adequate safeguards have left homeowners vulnerable and could lead to unexpected or unintended effects on the housing market, CUNA wrote to the Federal Housing Finance Administration Monday. The FHFA requested feedback on PACE loans, which can often take lien priority over existing and subsequent first mortgages.

“As PACE financing programs have grown in number over the past decade, these unconventional loan programs have remained a serious concern for credit unions, consumer groups, and other entities participating in the housing market,” the letter reads. “PACE programs vary by state, county and municipality, however most include a property tax lien that is often a super-priority lien over all other liens on the property. Sometimes, consumers are unaware of this lien priority, or do not fully understand the ramifications of it. This lien priority can make selling property and refinancing loans especially difficult for consumers.”

CUNA’s disagrees with the FHFA on several points including:

• CUNA does not agree that FHFA should direct the GSEs to decrease loan-to-value ratios for all new loan purchases in states or in communities where PACE loans are available;
• CUNA does not agree that the FHFA should direct the GSEs to increase their Loan Level Price Adjustments (LLPAs) or require other credit enhancements for mortgage loans or refinancing in jurisdictions with available PACE financing; and
• CUNA also opposes requirements that lenders and loan servicers provide consumer disclosures and additional reporting regarding PACE liens, as these institutions are not responsible for the risk generated by PACE financing.

Instead of these policies, CUNA called on the FHFA to urge the Consumer Financial Protection Bureau (CFPB) to quickly promulgate a PACE financing rule that subjects PACE lending to Truth in Lending Act requirements.

The rule should address:

• Proper underwriting requirements for PACE financing, including an “ability-to-repay” analysis based on verified and documented information about the borrower;
• Clear, understandable disclosures of the key terms, repayment, and potential impacts of a PACE lien provided to the homeowner prior to the execution of the contract;
• Debt-to-income ratios, which should not exceed the ratio established for traditional mortgage loans;
• Its application to any type of residential PACE lending, regardless of name or how the program is marketed to the consumer; and
• Preemption of state laws, unless the state has established a higher standard of consumer protection.