No surprises in HUD’s PACE Guidance

By Roy L Hales

Seven years ago, the White House released policy guidelines that would allow homeowners to finance home energy improvements through their property taxes. The Property-Assessed Clean Energy (PACE) is a local government/corporate partnership, in which private companies supply 100% of the initial funding and are paid back over time. If this remarkably simple program were not classified as tax, it would have been adopted offered through-out America years ago. Taxes take priority over mortgages, should the homeowner default. So Fannie Mae and Freddy Mac urged local governments to put their PACE programs on hold. Yesterday, the US Department of Housing and Urban Development (HUD) announced the obvious solution. Aside from the length of time it took the government to adopt a painfully obvious solution, there are no surprises in HUD’s PACE guidance.

No surprises in HUD’s PACE Guidance

The Federal Housing Authority will ensiure homes using PACE funding providing :

” … the property may only become subject to an enforceable claim (i.e., a lien) that is superior to the FHA-insured mortgage for delinquent regularly scheduled PACE special assessment payments. The property shall not be subject to an enforceable claim (i.e., lien) superior to the FHA-insured mortgage for the full outstanding PACE obligation at any time (i.e., through acceleration of the full obligation.) However, a notice of lien for the full PACE obligation may be recorded in the land records.”

Translation: While funds owed through delinquent monthly payments take priority over existing mortgages, the full amount of the PACE lien does not. To make a hypothetical repayment schedule in case legal actions are required:

  1. If $2,000 is owed through delinquent PACE payments, that is paid out first
  2. Then the mortgage is paid off in full
  3. If there are still funds available, the residue of the PACE lien is paid off.

An Exciting Day

Two of America’s leading PACE companies held a joint press release to celebrate the announcement.

“This is an exciting day for energy efficiency and renewable energy, and homeowners across the country. They will now be able to access and enjoy clean energy without the upfront cost. This is the key component to making the transition to cheaper, cleaner energy,” said Cisco DeVries, CEO of Renewable Funding.

He was the founder of the original PACE program, which was created to facilitate a faster adoption of rooftop solar in Berkeley, California, during 2008.

“The importance of today’s guidance is that it unites national clean energy objectives with Federal Housing Policy priorities,” said J. P. McNeill, CEO of Renovate America,

The HERO Program, which his company operates, has provided $1.58 billion in financing for projects in more than 70,000 homes throughout California.

MBA Voices Opposition

Incredibly,  the Mortgage Bankers Association (MBA) has taken exception to the new guidance.

“We are concerned that this program, as designed, would leave low and moderate income FHA borrowers more vulnerable to being misled and steered into financial obligations that they may not fully understand due to lack of disclosure.  Further, the program puts taxpayers at risk by effectively making the FHA the guarantor of home improvement loans made by private contractors, thus increasing loss severity for the FHA program if borrowers default,” writes Pete Mills, Senior Vice President of Residential Policy and Member Engagement for the MBA.

The key phrase of his release is: “Alternative means to finance energy efficient improvements already exist that don’t pose the same risks to consumers and taxpayers.  MBA urges FHA to solicit and incorporate feedback from the industry to refine their program to better serve and protect consumers and the taxpayers.”

Mills’ organization represents “the industry” which is the “alternative means to finance energy efficiency improvements.” They are collectively responsible for the mortgage collapse of 2008, which Encyclopedia Britannica calls “most dangerous crisis since the Great Depression of the 1930s.”

One has to wonder what risks Mills thinks homeowners incur taking out a PACE loan?

PACE Improves property values

Neither PACE, or mortgages, are the best method of paying for energy improvements. These are avenues for people who cannot afford to pay cash.

However, a study by housing economist Laurie Goodman found that homeowners who used the PACE program to improve their property also increased the real estate value. The homes she studied gained a premium of from $199 to $8,882 when it came to resale.

She concluded. “on average, homeowners (who took out PACE loans) are able to recover at least their full costs at resale.”

White House Comments

” … The updated guidelines reflect the evolving structure of the PACE market and incorporate lessons learned from various PACE programs that have been successfully implemented since the original guidelines were issued. They provide best practices for residential PACE programs, including protections to both consumers who voluntarily opt into PACE programs, and to lenders who hold mortgages on properties with PACE assessments.” – The White House.

Top Photo Credit: Sullivan Solar Power installation through the HERO PACE program – Courtesy HERO PACE

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