The national credit union trade associations have joined with unlikely partners as co-signers on a letter that calls out the Department of Housing and Urban Development over lending issues.
The Credit Union National Association and the National Association of Federal Credit Unions have co-signed a letter with the American Bankers Association, the Independent Community Bankers of America and others, telling HUD on behalf of the Federal Housing Administration and the Department of Veterans Affairs that they are concerned about the handling of Property Assessed Clean Energy loans.
According to the letter, previous policies implemented by the FHA and VA had restricted financing or refinancing of a home if the property was not under any liens other than mortgages insured or guaranteed by the FHA or VA. PACE obligations are collected through property tax and "exhibit a senior lien position to an FHA or VA loan," the letter stated. "Prior FHA and VA policy was designed to ensure that obligations like a PACE 'super lien' would not erode the value of collateral in the event of foreclosure or sale."
Trade groups argue new guidance regarding PACE loan structures deem them a tax assessment as opposed to a super lien. "This declaration is a form over substance evasion that fails to protect the FHA Mutual Mortgage Insurance Fund and the VA loan guaranty program," the letter said.
Due to PACE loans being classified as a tax assessment, trade groups are worried the loans do not fall under Consumer Financial Protection Bureau protections. The trade groups — which also include several realty associations — worry borrowers may not fully be aware of the consequences that come with the potential for an increased financial obligation.
CUNA and NAFCU have expressed concerns with the plans since they were announced in August 2015.
Santa Ana, Calif.-based SchoolsFirst FCU Vice President of Compliance Tony Diaz testified at a California Legislature Joint Oversight Hearing entitled "Keeping Up with Pace" in June of this year. "An average of six members per week apply for mortgage loans with our credit union on properties that are encumbered with a PACE loan," Diaz said at the hearing. "We advise these members that, due to the priority-lien status of the PACE loan, they will have to pay off this loan prior to us being able to refinance their existing mortgage loan."
In the letter, trade groups pleaded with agency officials to suspend proposed PACE guidelines and issue the proposal through notice and comment, enabling affected industries the ability to "comment and assist the departments in establishing policies that better protect consumers, lenders and taxpayers."