This week the Federal Housing Administration (FHA) and Department of Veteran’s Affairs (VA) announced changes to the treatment of Property Assessed Clean Energy (PACE) loans. This new guidance, which goes into effect immediately, states that PACE loans will remain in a subordinated position on most FHA mortgages, in line with long-standing guidance from the Federal Housing Finance Agency.
However, the guidance also notes that PACE loans will retain a first-lien position for delinquent PACE obligations or foreclosed properties. While NAR supports incentive-based programs that allow homeowners to improve the energy efficiency of their homes and reduce their energy costs, we are also concerned about placing PACE loans in a first lien position ahead of the primary mortgage. This could result in fewer homeowners taking advantage of the program, increase uncertainty in mortgage markets and make it more difficult for distressed homeowners to refinance their mortgage outside of FHA or VA programs.
NAR believes in the need to maintain and strengthen mortgage markets while supporting energy efficiency and lower utility costs, and we urge FHA and VA to reconsider their policy and work with industry partners to address these concerns.