U.S. Department of Housing and Urban Development Announces The Federal Housing Administration Will Cease Insuring Mortgages On Homes With PACE Assessments
PACENation is dismayed to learn that HUD has abruptly reversed FHA’s PACE policy, which was put into effect by the Obama Administration in 2016, and will no longer insure mortgages for homes with Property Assessed Clean Energy (PACE) assessments. The new guidance is set to go into effect on January 6, 2018.
PACENation finds it disappointing that HUD has made a determination that will eliminate one of the principal benefits of PACE, which is transferability of the PACE assessment upon resale, for homes that have used FHA financing. It is well documented that PACE is a successful tool for helping homeowners make energy efficiency, renewable energy and water conservation improvements that save money and make their homes safer and more comfortable to live in.
The mortgagee letter released by HUD yesterday names two reasons for the policy change: concern about losses to FHA’s Mutual Mortgage Insurance Fund, and concern with the lack of consumer protections related to PACE.
PACENation feels this decision lacks justification, and no evidence has been provided that the FHA insurance fund has been adversely impacted by PACE. On the contrary, an independent study published by the Journal of Structured Finance in 2016 concluded that PACE projects on average, “are able to recover at least their full costs at resale, whereas most other home improvers are only able to recover about 60%.” In general, PACE projects recovered at least 100% of their full costs, usually more.
Regarding the consumer protections, California has enacted landmark PACE consumer protection laws this year, in PACE’s largest marketplace, which conditions PACE underwriting on income and ability-to-pay, and creates a standard valuation model for assessing properties.
PACENation believes that it’s important for consumers to have access to choices, and HUD’s decision to hinder consumer choice in a free market does not best serve our communities. “We want to make sure homeowners have access to safe choices, and that’s why we are excited about the new regulatory framework and consumer protection policies in California,” said David Gabrielson, Executive Director of PACENation. “Our priority is to support a fair marketplace where consumers are protected and financiers are regulated, so homeowners can make clean energy upgrades that they want, and in many cases, need to make.”
It is disheartening that the administration has taken this stance, however, the PACE marketplace projects this action to be symbolic, rather than tangibly disruptive to the industry. Mike Lemyre, Senior Vice President of Ygrene Energy Fund said, “The FHA decision simply mirrors existing FHFA policy adopted in 2010 – which did not deter the emergence and growth of the PACE market. An important distinction in this case though, is that one of the most popular FHA mortgage products is a 96.5% loan. These homeowners would not qualify for PACE anyway.”
PACENation is a national non-profit organization serving the interests and needs of over 400 member organizations that share a common goal of making PACE financing available to all building owners throughout the United States. PACENation is building a broader PACE network by providing information, resources, and advice to a growing universe of PACE market stakeholders. To learn more, visit http://PACENation.org