GSEs: Borrowers Must Pay Off PACE Loans Before Refinancing

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.

According to letters from Fannie Mae and Freddie Mac, borrowers who do not have sufficient equity may refinance their mortgages while keeping the PACE assessment in place.

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


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