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Can’t Keep PACE? Try FHA Improvement Loans

by Gina Pogol
July 18th, 2010

Property Assessed Clean Energy (PACE) programs were created to allow local governments to issue bonds to help homeowners finance energy efficiency upgrades or install new solar panels. Money from the bond sales is lent to property owners, who repay it over a period of up to 20 years through special assessments when they pay their property taxes. This allows them to get improvements that save energy and money, ideally paying the cost with the savings generated by the home improvements.

PACE laws have been enacted in 22 states as of July 2010 to save energy use and promote job creation.

However, the programs may be dead almost right out of the gate – thanks to Freddie Mac and Fannie Mae. The problem is that the mortgage behemoths have issued guidelines to all of their lenders, stating that they will not purchase or fund loans on homes enrolled in the PACE programs unless the lien is repaid first. This could make it difficult-to-impossible for people to sell their homes or refinance their mortgages.

Why would Fannie or Freddie do this? Because, according to a lawsuit filed against them on July 14th by the State of California, they choose to mis-categorize the assessments as loans with senior lien status. Fannie and Freddie only buy loans in which they have the first position, and obligations incurred through the PACE program take precedence over liens placed against the homes at later dates.

Until Congress or the White House acts to resolve the problem, those who enter the PACE programs do so at their own risk. But what if you’d like to add energy improving upgrades now? You can, through FHA’s 203(k) program for major upgrades and refinancing, or through its energy improvement mortgage program, or HUD’s Title 1 Home Improvement Program. Home equity is not required for you to qualify for these programs.

So even if the PACE program is off limits, you have options. Call an FHA-approved lender and see what’s available to you.

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This entry was posted on Sunday, July 18th, 2010 at 4:20 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “Can’t Keep PACE? Try FHA Improvement Loans”

  1. Larry Says:

    PACE is an Assessment similar to 37,000 other assessments in taxing districts across the country, many of which are longer than 20 years. All of these assessments inevitably are priority liens to a first mortgage in the event of a default. PACE is the first assessment which I am aware that actually will lower the operating cost of your property while serving a vital public policy -reduction of green house gases and carbon emissions.
    PACE Assessments allow people to finance energy efficiency and renewable energy improvements which lower the operating cost of your property which will strengthen a borrower’s ability to pay their mortgage.
    PACE Assessments allow consumers the ability to spread the financial burden of these costs over many years just as the utilities and municipalities finance power plants over 30 – 50 years at interest rates lower than what any consumers were paying (pre-PACE) through many other financing arrangements available that do not align consumers goals with government. Why shouldn’t consumers receive the same type of financing benefits?
    PACE Assessments align consumer’s goals with those of the government which are mandating or operating under goals to reduce Green House Gases and Carbon Emissions.
    This public policy inevitably leads to the creation of hundreds of thousands of community jobs across the country. All these extra jobs will allow many unemployed workers who may coincidentally be behind on their own bills to begin getting back on track with their own mortgage payments which will be another benefit to lenders and those who guarantee loans.
    Lenders deal with increasing tax bills all the time and part of the closing documents you sign, especially when you pay in to an escrow account, strictly state that they will be increasing your monthly payment to reflect any increases in your tax bill. Since you voluntarily opt in to a PACE Assessment this is something that you actually plan for whereas the other 37,000 assessments just appear when you receive your tax bill. PACE guidelines stipulate that you notify your lender or mortgage servicer.
    Sonoma County has over 1000 assessments and 700 pending. This is a large sample. In elections polling is used with great accuracy and samples of 300 – 600 lead to highly accurate predictions over 90 % of the time. The data from the over 1000 homes with PACE improvements have a 60% lower rate of default. Don’t let anyone tell you the sample isn’t large enough.
    Congress (HB5766), Senate (Bill recently submitted), the DOE, HUD, FHFA, FNM & FRE all realize that these are assessments. Inevitably, it appears, all anyone wants is clarity as to guidelines and this matter will be solved.
    Please continue to reach out to your Congressman & Senators and urge them to finalize this important, non-partisan issue immediately!

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