December 8, 2017
The FHA has revised its’ policy on home loans for properties encumbered by Property Assessed Clean Energy (PACE) obligations.
According to the FHA official site, in 2016 the agency “established requirements regarding the eligibility for FHA-insured mortgages of properties encumbered with PACE obligations that permitted, under some circumstances, a continuing obligation for repayment of the PACE obligation even after foreclosure and acquisition by FHA.”
But that policy has since come under review due to concerns “for increased losses to the Mutual Mortgage Insurance Fund due to the priority lien status given to such assessments in the case of default.”
According to the official site, the agency “is also concerned with the lack of consumer protections associated with the origination of the PACE assessment, which are far less comprehensive than that of traditional mortgage financing products.”
Further involvement with accepting properties with PACE assessments, an FHA mortgagee letter states, could “indirectly help to overshadow potential consumer abuses”.
With that in mind, the FHA has announced that homes to be purchased with FHA mortgages that are also encumbered with PACE obligations will “no longer be eligible” for FHA-insured forward mortgages.
Furthermore, homes that will remain encumbered with PACE obligations “are not eligible for an FHA-insured HECM” or Home Equity Conversion Mortgage, also known as an FHA reverse mortgage.
For such loans the new FHA policy is that “…the payoff of a PACE obligation is a Mandatory Obligation” with a requirement under the new guidelines that such obligations be paid off at closing, and “may be paid off using HECM proceeds”.
For refinance loans, the FHA PACE policy is updated to include the following guidance to the lender:
“Clarification is provided to identify PACE obligations as existing debt that may be paid off using a Rate and Term Refinance. Current policies allowing the use of a Cash-Out refinance to pay off PACE
obligations remain unchanged.”
Policies for loan servicing for PACE-assessed properties purchased before the new rules become effective will not change.
These changes are effective for all case numbers assigned thirty days after the date of the FHA mortgagee letter (December 7, 2017). Speak to your loan officer if you aren’t sure how the new FHA PACE policies affect your transaction.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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