The Federal Housing Administration intends to allow home loans on properties with controversial liens used to finance energy efficient improvements.
Back in July 2010, the Federal Housing Finance Agency issued a directive
preventing Fannie Mae and Freddie Mac from buying loans on properties encumbered by Property Assessed Clean Energy loans.
The problem with PACE loans, according to the regulator, was that
they take priority over mortgages backed by Fannie and Freddie.
That directive led to a lawsuit filed by California and municipalities within the state against FHFA that alleged the agency needed to go through the rule making process in order to issue such a directive. While the district court ruled in favor of the plaintiffs, the decision was overturned on appeal in 2013.
But now PACE loans are back in the news.
An announcement Monday from the Department of Housing and Urban Development indicated that FHA intends to issue a set of guidelines supporting borrowers who want to make energy efficient improvements to their homes.
The release explained that PACE generally enables borrowers
to finance energy efficiency improvements for up to 20 years through assessments attached to the property.
But FHA will only allow PACE liens that preserve payment priority for first lien mortgages through subordination.
HUD also noted that  PACE assessments must be fixed-rate and on a fixed repayment schedule, be recorded and identifiable to the lender, and be attached to single-family one- to four-unit dwellings.
HUD said that it will allow increases in income qualifying ratios by 2 percent above the standard single-family FHA limit when the property rates at least six based on the Department of Energy’s Home Energy Score.
HUD said the move is part of the White House’s National Clean Energy Summit.
