Since 2010, the Department of Housing and Urban Development’ Federal Housing Authority (FHA), along with federal mortgage insurers, have warned against buying mortgages with Property-Assessed Clean Energy (PACE) assessments, but it signaled in August that it will be getting on board with PACE financing that has spread through 31 states since 2008.
Jurisdictions with PACE programs are able to use revenue from bond sales to pay the upfront costs for clean energy or energy efficiency improvements, such as rooftop panels and insulation, and the homeowners repay the loans with an assessments tacked onto their property tax bill.
The purpose of the PACE program is to remove barriers to expanding the residential and commercial energy efficiency market. PACE attempts to solve two problems for the spread of clean energy technologies: (1) a lack of capital for upfront costs, and (2) the inability to realize a return on the initial investment before the property owners moves. The FHA guidance is focused on how “properties with subordinated PACE loans can be purchased and refinanced with a FHA insured mortgage.”
PACE programs allow homeowners and businesses to finance energy efficiency and renewable energy projects on their properties, with local government financing the large up-front costs that property owners are often hesitant to bear.
The guidance reflects ongoing discussions with the Federal Housing Finance Authority, but it contains some baseline provisions. Thus far, the guidance stipulates that FHA-backed mortgages are available for PACE programs that include payment priority for first lien mortgages; are fixed rate, and fully amortized; are attached to single-family dwellings, as defined by FHA; are formally recorded and identifiable to a mortgage lender through a title search; and comply with consumer laws, and include disclosures and training for participating homeowners.
The question now is how much these issues were previously holding back homeowners from utilizing PACE financing, and whether the FHA’s approval will push it forward.
Continue the conversation on Bloomberg BNA’s State Tax Group’s LinkedIn page: Is the FHA guidance complete? Will it adequately address the deficiencies of PACE assessments?
Sign up for a free trial of the Bloomberg BNA Premier State Tax Library and see a detailed discussion on state property taxes.
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