Loan Modification

Can?t Keep PACE? Try FHA Improvement Loans

By Gina Pogol

Property Assessed Clean Energy (PACE) programs were created to allow local governments to issue bonds to help homeowners finance energy efficiency upgrades or install new solar panels. Money from the bond sales is lent to property owners, who repay it over a period of up to 20 years through special assessments when they pay their property taxes. This allows them to get improvements that save energy and money, ideally paying the cost with the savings generated by the home improvements.

PACE laws have been enacted in 22 states as of July 2010 to save energy use and promote job creation.

However, the programs may be dead almost right out of the gate – thanks to Freddie Mac and Fannie Mae. The problem is that the mortgage behemoths have issued guidelines to all of their lenders, stating that they will not purchase or fund loans on homes enrolled in the PACE programs unless the lien is repaid first. This could make it difficult-to-impossible for people to sell their homes or refinance their mortgages.

Why would Fannie or Freddie do this? Because, according to a lawsuit filed against them on July 14th by the State of California, they choose to mis-categorize the assessments as loans with senior lien status. Fannie and Freddie only buy loans in which they have the first position, and obligations incurred through the PACE program take precedence over liens placed against the homes at later dates.

Until Congress or the White House acts to resolve the problem, those who enter the PACE programs do so at their own risk. But what if you’d like to add energy improving upgrades now? You can, through FHA’s 203(k) program for major upgrades and refinancing, or through its energy improvement mortgage program, or HUD’s Title 1 Home Improvement Program. Home equity is not required for you to qualify for these programs.

So even if the PACE program is off limits, you have options. Call an FHA-approved lender and see what’s available to you.

Full post as published by FHA Mortgage Guide on July 18, 2010 (boomark / email).