FHA Announces no more PACE Loans

Pace Loans After the March 2017 updates on its PACE policy that modified: application of payments, pre-foreclosure sales (PFS) regulations, deed-in-lieu of foreclosure rules, conveyance of acquired properties, and imposed disclosure rules.  FHA recently announced that they will no longer insure new mortgages on homes with PACE and HERO loans in Nevada.  

Let’s first define PACE and HERO

Property Assessed Clean Energy, or PACE, is a type of financing mechanism, established by Renovate America Agency, that enables you to access low-cost, long-term (5 – 25 years) funding for energy efficiency and/or renewable energy projects. Via the PACE financing, you can purchase solar panels, solar hot water hitters, solar pool heaters, etc. PACE, designed both for individuals and businesses enables them to defer the upfront costs, thus removing the most common hurdle to becoming energy efficiency. As mentioned the PACE loans are paid on the property owner's property taxes, by additional assessments, in the period of time the property owner agreed upon.  Immediately the energy costs will decrease, even the taxes will increase. Solar panels and the PACE loan is attached to the property, not to the person. Therefore the consumer can sell the property leaving the debt to be paid via the same mechanism by new owner(s).

To become functional the PACE program has to follow three steps:

  1.    A set of state-level laws that make it possible for local communities (cities and counties) to adopt PACE. 2.    Homeowners in PACE-enabled communities can apply for PACE financing programs, like HERO, to make upgrades in terms of making their homes energy efficient or go solar. 3.    From the moment their home improvement project is complete, the homeowner repays the PACE assessment through their property tax bill, via an additional line item.  

Home Energy Renovation Opportunity or HERO

HERO is a PACE project that allows homeowners to improve their home’s efficiency. You can finance using HERO program solar and heating & cooling systems, roofing, doors, and windows or drought-tolerant landscaping. You can also purchase and install hurricane protections. State of Nevada passed the PACE enabling legislation however, there is NO program operating in Las Vegas.  Currently, the only states with programs operating are California, Florida & Missouri. The program looks very nice, so why FHA decided to stop insuring new mortgages with PACE loans? The trigger of this decision was by the insufficient consumer protection for both borrowers and taxpayers. This is due to the fact that the portion of the PACE loan superseded in rank before an FHA-backed mortgage. In the case of foreclosure, the PACE loan is paid off first.  Then, if sufficient funds remained, the lender received its money. Being the second in line in case of foreclosure doesn’t give the lender a comfortable level of risk. According to all statistics PACE borrowers do not default on their mortgages more frequently than borrowers without a PACE loan.  Therefore the risk is not higher than non PACE loans.

Getting financing

Financing for homes with PACE obligations will become more difficult across the nation. The FHA now joins the Federal Housing Finance Agency. The FHFA has stopped Fannie Mae and Freddie Mac from purchasing mortgages on homes with PACE loans. Under these new conditions selling a home with a PACE loan will create problems for potential buyers. The current owner must fully pay off the PACE loan before the sale is final. The homeowner may not agree to pay the PACE loan off since it was to be a long-term investment. This may limit the opportunities to sell the property that has a PACE loan. That otherwise can be a very attractive one if we are to think at the low cost of energy.

To find out if there is another program out there that will work for you

Contact Casey Moseman, CMPS

702-271-1274