Borrowers must pay off their Property Assessed Clean Energy (PACE) obligations prior to refinancing, provided the borrowers have sufficient equity, the government-sponsored enterprises (GSEs) instructed lenders this week. PACE programs promote financing for energy retrofits of residential or commercial properties through municipality tax assessments.
In July, the Federal Housing Finance Agency (FHFA) stated that PACE programs that mandate lien priority over first mortgages ‘pose safety and soundness concerns’ for the GSEs.
Fannie Mae and Freddie Mac have instructed lenders that they will not purchase mortgages secured by homes with outstanding PACE obligations unless the terms of the PACE program do not permit lien priority over first mortgages. The GSEs are leaving it up to lenders to monitor and know whether a jurisdiction's PACE program requires lien priority.
SOURCES: Fannie Mae, Freddie Mac