Shopping Cart
Welcome,   My Account

PACE Loans

The U.S. Department of Housing and Urban Development, on behalf of the Federal Housing Administration, and the U.S. Department of Veterans Affairs on July 19, 2016, issued guidance related to Property Assessed Clean Energy loans, known as PACE loans.

  • PACE is a locally developed and promoted program that generally allows homeowners to make energy efficiency improvements using municipality-provided loans, which are paid back through local real estate assessments.
  • PACE loans are available to commercial and residential property owners in many states, but this particular set of concerns relates to FHA and VA insured loans and those agency policies.  
  • The agencies recently announced they would insure certain mortgages that may be encumbered by PACE obligations under certain conditions.
  • The agencies have released guidelines that establish certain conditions for insuring such loans, including that PACE loans:
  1.  Be secured like other special assessments;
  2. Avoid certain lien positions;
  3. Be transferrable to new property owners, and
  4. Be readily apparent to all parties involved in the real estate transaction, including appraisers.

Appraisal Institute Concern
The Appraisal Institute disagrees with several elements of the agencies’ guidance, including a lack of sufficient consumer protection.

  • The agencies provided no notice or comment opportunity to consumers and stakeholders.
  • The policy potentially marks the return of potentially highly leveraged and risky lending, as the guidance indicates the PACE lien combined with the amount of the mortgage could be 100 percent of the property’s value.

What happens if owners need to sell due to divorce, death, relocation, unemployment or similar reasons?

  • They would be stuck with a property that they cannot sell for what they owe, and they would have to bring money to the closing table or short sale.
  • From an appraisal standpoint, the agencies have not gone far enough to address disclosure and transparency issues, which will complicate appraisal assignments.

Any policy should not only disclose that a PACE loan exists, but the amount of the remaining balance. This is essential to analyzing the contract and price and comparing with other sales in the market, as adjustment may need to be made for sales concessions.

The FHA handbook (revised fall 2015) does not adequately address long-standing concerns with a lack of communication between direct endorsement underwriters and appraisers.FHA appraiser qualification requirements do not adequately prepare appraisers to deal with some of these issues. 

Action Needed
The Appraisal Institute calls on FHA and VA to seek stakeholder input and to revise the guidance.

  • The Appraisal Institute recommends that the federal agencies seek input from appraisers and other stakeholders in order to generate proposed revisions to the guidelines.
  • The Appraisal Institute requests that FHA and VA change the guidelines:
  • Require disclosure of the amount owed;
  • Require FHA appraisers to have demonstrated education on FHA appraisal requirements and if the agency is going to take on this risk, they should also enhance real estate sector education on green and energy efficiency issues; and
  • Resolve ongoing communication problems with direct endorsement lenders.

Septemeber 2015 Letter to HUD Secrtarty Castro on the PACE Loan initative.

Joint Trade Association Letter to the Secretary's of HUD and VA addressing concerns with PACE Loans.

Pop up content here.

Agree Disagree
close (X)