California Realtors Press FHA for Direction on PACE Liens

The California Association of Realtors has renewed its push for promised Federal Housing Administration guidance that would make Property Assessed Clean Energy liens subordinate to first mortgage liens.

"In order to ensure market stability, and to present a uniform policy for the secondary market, we request that HUD issue guidelines directing their lenders and servicers that PACE liens may NOT be senior to any mortgage insured by the FHA," said association president Pat "Ziggy" Zicarelli in a May 31 letter sent to Shaun Donovan, who heads the influential Office of Management and Budget. Donovan also previously served as an FHA commissioner.

The OMB helps a wide range of executive departments and agencies across the federal government to implement the commitments and priorities of the president, and the FHA also has said it will work with the Consumer Financial Protection Bureau, the Department of Energy, Treasury and other industry stakeholders in finalizing PACE guidance.

Uniform policy on PACE liens is in question because while the FHA said last August that it had consulted with the Federal Housing Finance Agency on the issue, the government insurer said there was no guarantee the two agencies would adopt the same policies. While the FHA has said it would make PACE liens subordinate, the FHFA has required that PACE "super-liens" be paid off by borrowers before they purchase or refinance loans on properties with Fannie Mae or Freddie Mac mortgages.

The FHA's policy on PACE liens is of particular concern for CAR because "the use of PACE 'super liens' has grown more in California than in any other state," Zicarelli said. A recent state bill, AB 2593, aims to provide consumers with more clarity in regard to their obligations under PACE, he noted in the letter. The bill at one point included language that aimed to resolve the conflict in lien priority, but this was removed in a recent amendment.

PACE loans aim to help borrowers fund energy-efficient home improvements and are structured as state tax liens.