ALTA Urges FHA, VA to Suspend Proposed PACE Loan Rules

August 18, 2016

ALTA joined several other trade associations including the Mortgage Bankers Association and National Association of Realtors sharing concern over proposed federal rules for Property Assessed Clean Energy (PACE) loans.

In July, the U.S. Department of Housing and Urban Development outlined circumstances under which the Federal Housing Administration and Department of Veterans Affairs could insure or guaranty mortgages on properties that include PACE assessments. The guidance allows the FHA and VA to approve purchase and refinance mortgage applications in states that treat PACE obligations as special assessments similar to property taxes.

Among the requirements in the new guidance is the stipulation that the outstanding PACE loan obligation does not take first lien position ahead of the FHA-insured or VA-guaranteed mortgage.

In an Aug. 16 letter, however, the 11 trade associations said the guidance provides that delinquent PACE loan amounts will retain a first lien position.

“Allowing any PACE loan amount to hold a senior priority undermines the lender’s (and the government’s) collateral position and disrupts the very nature of secured lending,” the letter says.

The trade groups also believe the guidance raises several consumer protection issues.

“Although outstanding PACE loan obligations technically ‘run with property,’ real estate professionals report that many subsequent purchasers of these homes reject the presence of a PACE payment obligation and insist that the seller extinguish the PACE financing before consummating the purchase,” the letter says. “This leaves the original borrowers with a closing table surprise and far less in sale proceeds than they anticipated.”

Because of these reasons, ALTA urged the FHA and VA to suspend the applicability of the proposed PACE guidelines and issue the proposal for notice and comment. 

Contact ALTA at 202-296-3671 or