The other day I posted a blog outlining FHA’s policy on the acceptance of properties encumbered by PACE (Property Assessed Clean Energy) loans for FHA insured financing. If you missed it, (click here).
To be fair, here’s the other side of the story. The MBA is concerned that the financing of such properties may have some serious repercussions on the FHA insurance fund. (Caution)
More important for lenders is the fear that originating loans on properties with PACE assessments may open lenders to additional False Claim Act actions by DOJ. Other Fannie concerns include:
- The responsibility of servicers to collect, and potentially advance for, the monthly payments required on the PACE assessment;
- Recovery value of FHA REOs may be adversely affected by the presence of the PACE lien;
- Accurate assessment of the additional value resulting from the PACE improvements when appraising the property for a new loan may improperly affect value;
- Adversely affect a borrower’s potential to sell the property because of the additional monthly cost of the PACE loan. May have a tendency to reduce the property’s value, or result in a reduced payout to the owner.
These are all very valid concerns and one’s that lenders should weigh carefully when considering the financing of a PACE assessed property.
So now you have two sides of the issue. Maybe there’s more. What do you think?
- Do the PACE improvements make it easier for the borrower to afford the home, including the added assessment costs?
- Is FHA biting off a little more than they can chew by essentially guaranteeing these assessments?
- Do these present too much risk to lenders and the FHA insurance fund?
We need to find a way to upgrade the nation’s oldest housing stock while providing affordable housing to first-time, and low to moderate income, home buyers.
Think about it. We now provide maximum financing to consumers with very limited credit and housing experience to purchase the oldest homes in inner city areas.
One major repair, one event that impacts household income or increased medical expenses may push these homeowners right into default. As most are qualified at the DTI limits, with minimal reserves, if any, such a default will lead them into foreclosure, ending with the loss of their home. That’s not good for anyone.
Can PACE help, or will it hinder?
Tread cautiously my friends.