In January 2020 the Federal Housing Finance Agency (FHFA) published a request for input on Property Assessed Clean Energy (PACE) transactions involving residential property. FHFA describes PACE transactions as being part of residential energy retrofitting programs that are created through special state legislation and result in the financed part of the transaction resulting in a tax assessment on the home, which is a ‘‘super-priority lien’’ over existing and subsequent first mortgages. (As previously reported, pursuant to the Economic Growth, Regulatory Relief and Consumer Protection Act (Act) the CFPB is conducting rulemaking to extend Truth in Lending Act ability-to-repay requirements to PACE transactions.)
The FHFA notes in the request for input that previously it directed Fannie Mae and Freddie Mac not to purchase mortgage loans on homes that are subject to a lien in connection with a PACE transaction. FHFA also notes that the Federal Housing Administration (FHA) will not insure loans on homes that are subject to a lien in connection with a PACE transaction. In the Request for Input, the FHFA seeks comment on enhancing the actions taken regarding PACE transactions.
In particular, the FHFA seeks comments on whether it should direct Fannie Mae and Freddie Mac to (1) decrease loan-to-value (LTV) ratios for all new loan purchases in states or in communities where PACE loans are available, or (2) increase their Loan Level Price Adjustments (LLPAs) or require other credit enhancements for mortgage loans or re-financings in communities with available PACE financing.
The deadline to respond to the request was March 16, 2020. Among the various comments, a number of industry trade organizations joined in a comment letter. In the letter, the organizations state “[w]e jointly write . . . to express our significant concern with FHFA’s consideration of options to limit access to conventional financing for borrowers with less than a 20% down payment simply because they live in jurisdictions where PACE financing may be available. A decrease in allowable [LTV] ratios for new home purchases in jurisdictions that permit PACE financing would be unnecessarily punitive to the millions of consumers who live in those jurisdictions and who would be affected negatively due to the presence of PACE financing in that area.”
With regard to the request for input on the increase of LLPAs, the organizations oppose such a policy and state that “increased LLPAs would be an unnecessary and burdensome fee for homebuyers that is unrelated to their personal credit profiles. This policy would amount to an arbitrary and speculative tax on homebuyers in select jurisdictions and is not grounded in the reality of the risk posed by any one borrower’s loan.” The organizations note that had such a policy been in effect in 2019, the “arbitrary fees” could have applied to nearly one million home purchase transactions in the three states (California, Florida and Missouri) that permit residential PACE financing.
The organizations joining in the joint comment letter are the California Mortgage Bankers Association, Credit Union National Association, Housing Policy Council, Leading Builders of America, Mortgage Bankers Association, Mortgage Bankers Association of Florida, Mortgage Bankers Association of Missouri, National Association of Federally-Insured Credit Unions, National Association of REALTORS®, Real Estate Services Providers Council, Inc. (RESPRO), and U.S. Mortgage Insurers.