White House Announces New Energy Initiatives
FHA to Allow Financing on Homes with Existing PACE Liens
On August 24, while speaking at the National Clean Energy Summit
in Las Vegas, Nevada, President Obama unveiled a number of
initiatives designed to encourage renewable energy development
and promote energy efficiency. Among other things, the
administration announced plans to expand loan guarantee authority
for innovative technologies, increase access to financing for
energy efficiency improvements, and provide solar power to
housing on over 40 military bases across the United States. In
addition, the Bureau of Land Management (BLM) announced that it
will approve the Blythe Mesa Solar project in Riverside County,
which is expected to produce enough renewable energy to power
more than 145,000 homes in California.
Of particular interest to CSAC, the plan also includes a proposal
that will expand financing options for residential Property
Assessed Clean Energy (PACE) programs. PACE allows property
owners to finance energy efficiency, water efficiency, and
renewable energy projects on existing residential and commercial
structures with repayments linked to a homeowner’s property
taxes. The concept is designed to allow homeowners to save money
on their utility bills, while also increasing the value of their
property.
In the coming weeks, the Department of Housing and Urban
Development’s (HUD) Federal Housing Administration (FHA) – which
provides mortgage insurance for more than 7.6 million households
nationwide – will issue guidance allowing borrowers to use FHA
financing for properties with existing PACE loans. However, the
new guidelines will require PACE liens to be secondary to the
mortgage.
For the most part, programs in California currently require PACE
assessments to hold senior lien status, putting it first in line
to be repaid in the event of a default. While this is the
preferred option among investors, mortgage lenders have argued
that this can be an impediment to the sale and refinancing of
PACE-encumbered properties. Some lenders even require the lien to
be paid in full prior to the sale or purchase of the
property.
This dispute between investors and lenders has created some
uncertainty in the PACE marketplace and has undoubtedly
discouraged some homeowners from taking advantage of this
innovative financing tool. At the very least, the forthcoming FHA
guidance should help establish clarity for both borrowers and
lenders, though it should be noted that the majority of programs
operating in California will need to make some changes to their
current financing structure to take full advantage of these new
guidelines.
Finally, this announcement could set the stage for the Federal
Housing Finance Agency (FHFA), which oversees Fannie Mae and
Freddie Mac, to make a similar move. Since 2010, FHFA has largely
thwarted residential PACE programs across the country, due in
large part to the Agency’s view that senior liens established by
PACE assessments pose risk management challenges for existing
mortgage lenders.