OCC Guidance Adds To PACE Program Woes

heels of the Federal Housing Finance Agency's statement earlier this week regarding the Property Assessed Clean Energy (PACE) program, the Office of the Comptroller of the Currency (OCC) has issued guidance to alert national banks to concerns and regulatory expectations regarding the energy retrofit initiative. PACE or PACE-like programs use the municipal tax assessment process to ensure repayment. Under most of these programs, such loans acquire priority lien, thereby moving the funds advanced for energy improvements ahead of existing first and subordinate mortgage liens. This lien infringement raises significant safety and soundness concerns that mortgage lenders and investors must consider, the OCC says. The regulator advises that national banks should ascertain if such programs exist in jurisdictions where they do business, determine whether those programs alter banks' lien positions, and consider the programs' impact on both banks' current mortgage portfolios and ongoing mortgage lending activities. The OCC says that, for existing mortgage and home equity loans, actions may include procuring loss guarantees from the respective states or municipalities, escrowing tax assessment-related debt service payments, and re-evaluating and adjusting home equity line of credit line amounts. In the case of commercial properties, additional collateral may need to be secured, the agency adds. The OCC also offered mitigating steps in relation to new mortgage and home equity loans. These steps include reducing real estate loan-to-value limits to reflect maximum advance rates of PACE programs to the extent they create super-senior lien priorities and considering the maximum amount of the PACE payment portion of the annual tax assessment in the institution's analysis of the borrower's financial capacity. In addition, banks that invest in mortgage-backed securities or that are considering the purchase of pools of mortgage loans should consider the impact of tax-assessed energy advances on their asset valuation, the OCC says. Finally, the OCC expects investment banking units to be cognizant of the impact of this type of funding vehicle on their respective institutions and on the mortgage market overall when making any decisions regarding associated bond underwriting. SOURCE: [link=http://www.occ.treas.gov/ftp/bulletin/2010-25.html ]Office of Comptroller of the Currency


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