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Fannie and Freddie to skip PACE properties

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Government initiative and mortgage agencies stand at odds as FHFA issued a directive on June 15 that refrains Fannie Mae and Freddie Mac from purchasing any mortgages that put Property Assessed Clean Energy, or PACE, financing as the primary lien.

Under the PACE program, which has been advocated by the Obama Administration in a move towards greener housing, property owners can borrow money from their local government to pay for cost-effective energy retrofits such as solar panels, LED light bulbs or “Cash for Caulkers.”

Areas that offer PACE loans, located in 21 states, receive payments over roughly 20 years, while funding the program by selling bonds to investors.

This financing however, poses a problem for Fannie and Freddie, as it gives PACE liens seniority over existing mortgage debts and therefore allowing PACE lenders to be paid before exiting lenders in case of a foreclosure.

Alfred Pollard, who serves as general counsel to FHFA, expressed his concerns to PACE’s first-lien status back in 2010.

“The goal of enhancing energy efficiency, which we share, should not overcome the need for prudent underwriting,” he said.

FHFA’s Notice of Proposed Rulemaking marks an official resistance to PACE financing.

Read the full FHFA ruling here.

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