FHFA Statement Clouds PACE’s Future

retrofit loan programs, specifically those denominated as Property Assessed Clean Energy (PACE), pose safety and soundness concerns for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the Federal Housing Finance Agency (FHFA) said Tuesday in a statement. PACE programs foster lending for retrofits of residential or commercial properties through a county's or city's tax assessment regime. Under most of these programs, such loans acquire a priority lien over existing mortgages, though certain states have chosen not to adopt such priority positions for their loans. Lien priority has been a sticking point for the government-sponsored enterprises (GSEs). The FHFA says first liens established by PACE loans pose difficult risk management challenges for lenders, servicers and securities investors, as the size and duration of PACE loans exceed typical local tax programs. ‘[F]irst liens that disrupt a fragile housing finance market and long-standing lending priorities, the absence of robust underwriting standards to protect homeowners and the lack of energy retrofit standards to assist homeowners, appraisers, inspectors and lenders determine the value of retrofit products combine to raise safety and soundness concerns,’ the FHFA said in its statement. In May, Fannie Mae and Freddie Mac alerted their seller-servicers to gain an understanding of whether there are existing or prospective PACE or PACE-like programs in jurisdictions where they do business and to be aware that programs with first liens run contrary to the Fannie Mae-Freddie Mac Uniform Security Instrument. On Tuesday, the FHFA directed the GSEs to undertake the following actions: [list]For any homeowner who obtained a PACE or PACE-like loan with a priority first lien prior to July 6, the FHFA is directing Fannie Mae and Freddie Mac to waive their Uniform Security Instrument prohibitions against such senior liens.*In addressing PACE programs with first liens, Fannie Mae and Freddie Mac should undertake actions that protect their safe and sound operations. These include, but are not limited to, adjusting loan-to-value ratios to reflect the maximum permissible PACE loan amount available to borrowers in PACE jurisdictions and tightening borrower debt-to-income ratios to account for additional obligations associated with possible future PACE loans.*The Federal Home Loan Banks are directed to review their collateral policies in order to assure that pledged collateral is not adversely affected by energy retrofit programs that include first liens.[/list] The FHFA said it remains committed to working with federal, state and local government agencies to develop and implement energy retrofit lending programs with appropriate underwriting guidelines and consumer protection standards. SOURCE: [link=http://www.fhfa.gov/webfiles/15884/PACESTMT7610.pdf]Federal Housing Finance Agency


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