Realtors are disappointed with the announcement by the U.S. Department of Housing and Urban Development (HUD) that the Federal Housing Administration (FHA) will begin insuring mortgages on certain properties with Property Assessed Clean Energy (PACE) loans. Officials in the real estate industry say there ought to be more disclosures regarding the risks associated with PACE loans.
A PACE loan allows a homeowner to borrow money to finance energy upgrades. The loan is repaid as a surcharge on the property tax. The PACE loan takes primary position to the mortgage. If the cost of repaying the PACE loan and any mortgages on the property exceeds the home's purchase price, the seller will be forced to make up the difference.
In a statement released following the announcement, California Association of Realtors president Pat "Ziggy" Zicarelli said, "Although C.A.R. supports voluntary consumer-friendly energy improvement programs for homeowners, C.A.R. believes that HUD was ill advised to approve placing PACE loans in a senior position to FHA first mortgages. Doing so places FHA homebuyers and taxpayers at risk and does homeowners a disservice by approving a loan product without consumer protections and which is aggressively sold to homeowners who rely on FHA financing for safe and affordable mortgages."
Realtors say PACE loans are unfairly expensive, and often are sold by high pressure door-to-door sales people. PACE loans carry interest rates higher than the first-mortgage or a home equity loan.
"This loan product has no minimum disclosures, no underwriting of the borrower, no proof that the borrower has the ability to repay, no three-day right to rescind, no marketing limitations, no interest rate or fee caps, no kickback prohibitions; nothing," added Zicarelli. "If the housing market of the last decade has taught us anything, it's that first-time homeowners, and low- and moderate-income homeowners are the most vulnerable and will be taken advantage of."
The Federal Housing Finance Agency (FHFA) and conservator of Fannie Mae and Freddie Mac prohibits PACE loans to be placed in a senior position to the mortgage. Both the FHA and Fannie Mae currently offer mortgage financing that allows borrowers to finance energy efficiency improvements at lower rates than PACE liens. HUD's announcement, which is contrary to FHFA's current policy will only confuse homeowners, homebuyers, Realtors, lenders, escrow, title and the housing market overall.
The National Association of Realtors also expressed its concern, especially with regard to delinquent foreclosed properties. "A foreclosed property with a PACE loan in the primary position will likely remain on the market longer than it should, further increasing uncertainty in mortgage markets and placing unnecessary pressure on homeowners," NAR President Tom Salomone said in a statement. "We're already experiencing tight lending standards that keep qualified buyers out of the market, and today's announcement gives lenders another reason to withhold mortgage credit on otherwise desirable properties."
Karen Trolan, president of the Silicon Valley Association of Realtors said, "Now, more than ever, the California legislature must pass AB 2693 (Dababneh), a C.A.R.-sponsored bill that would ensure consumers are aware of the consequences of PACE loans and have the opportunity to rescind after a three-day cooling off period. Current disclosures given to home buyers do not explain the potential consequences of using PACE loans. AB 2693 will require Truth in Lending type disclosures to borrowers."
The Department of Energy is currently updating its "Best Practices Guidelines for Residential PACE Financing" which may be used by states and counties to align with their consumer protection goals.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please email or call the SILVAR office at (408) 200-0100.