FHA to Stop Insuring Mortgages with PACE Assessments

The Federal Housing Administration (FHA) yesterday announced that it will no longer insure new mortgages on properties with Property Assessed Clean Energy (PACE) assessments.

PACE programs have been established by many state and local governments to provide homeowners with up to 20-year loans to finance energy efficiency home improvements. The assessments are secured by tax liens attached to the property. In the event that the property is sold before the PACE loan is paid in full, the loan may transfer to the next owner of the property.

Citing a growing risk to taxpayers, HUD Secretary Ben Carson stated that "assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer’s ability to repay, or when they attempt to refinance their mortgage or sell their home."

In the corresponding Mortgagee Letter, FHA states that the new policy regarding PACE loans will go into effect 30 days from December 7. HUD’s press release also expresses concern about outstanding PACE obligations on FHA-insured mortgages, declaring that additional monitoring will take place to "determine whether further action is warranted."

FHA’s announcement reverses policy enacted in July 2016 under the Obama Administration to allow FHA to insure mortgages on properties with PACE assessments under certain conditions.