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California REALTOR® officials voice concern over PACE financing

Tuesday, August 11, 2015

Property Assessed Clean Energy (PACE) loans are becoming a popular way of financing energy upgrades. Now the U.S. Department of Housing and Urban Development and Federal Housing Administration (FHA) are discussing giving this type of financing "super lien" priority, making these loans senior to FHA's single-family first-mortgage financing. California REALTORS®® are providing input on these discussions.

A PACE loan allows a homeowner to borrow money to finance energy efficiency upgrades, such as adding insulation, installing double-pane windows or solar panels. The loan is repaid as a surcharge on the property tax and stays with the property. The loan is then transferred to the new property owner upon purchase. PACE financing is available in 31 states, including California.

The California Association of REALTOR®® has voiced its concern about PACE financing. "Housing policy makers are only looking at the general concept of PACE, which is to promote energy efficiency, but they haven't taken the time to investigate how individual states are implementing the program and the hurdles and confusion it has created for real estate markets," said Chris Kutzkey, C.A.R. president.

Though PACE loans are a way to finance important energy upgrades,REALTORS® say this type of financing has some very real risks. "The PACE loan takes primary position to the mortgage. If a homeowner takes out a PACE loan without finding out whether their mortgage holder allows them to do so, they could be in automatic default of their mortgage," said Chris Isaacson, president of the Silicon Valley Association of REALTORS®®.

Isaacson explained homeowners may also have difficulty refinancing or selling their home if the new mortgage holder does not allow for PACE loans. "Under these situations, they would need to pay off the loan in full before proceeding," said Isaacson.

The Federal Housing Finance Agency (FHFA) currently prohibits Fannie Mae and Freddie Mac from buying mortgages or notes with PACE-type liens. According to REALTORS®®, if FHA's single-family policy on PACE liens veers away from Fannie Mae and Freddie Mac, it would cause more confusion and friction in real estate markets, with lenders, servicers, and other real estate industry professionals struggling to implement competing PACE procedures. Allowing PACE loans "super lien" priority over FHA single-family mortgages could also threaten its Mutual Mortgage Insurance Fund as states have expanded the use of their PACE programs beyond energy efficiency, such as water conservation and earthquake retrofit.

REALTORS®® are likewise concerned the lack of underwriting and disclosure in such loans invites abuse by unscrupulous contractors. "C.A.R. is supportive of the energy conservation goals of PACE, but we are concerned that the unregulated implementation of PACE lending in California has adversely affected the state's real estate market and complicated real estate transactions," said Kutskey.

The Town of Woodside and San Mateo County both approved PACE financing programs last year, joining other local municipalities like Menlo Park and San Jose in approving the option. The Silicon Valley Association of REALTORS®® cautions homeowners about the risks of this type of financing.

"PACE loans are based on the value of the home, not the ability to repay. These loans allow borrowers to place the debt on their property tax and are marketed to consumers with the idea that when the home is sold, the debt would pass on to the new buyer. Because they currently hold primary position over the mortgage, many banks will not loan to buyers or those looking to refinance, unless the loan is paid off first. We advise consumers to be aware of PACE loans. The best practice is full disclosure and speaking with the mortgage holder," said Isaacson.


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 contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.

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