FHFA Proposed PACE Rule Cites Financial Risks

by Carolyn Berndt

UPDATE 8/15/2012: The Federal Housing Finance Agency (FHFA) has extended the comment deadline until September 13. Cities and towns are encouraged to submit comments to FHFA before the deadline and to share them with NLC. See below for instructions on submitting comments.

Last week, the Federal Housing Finance Agency (FHFA) issued a proposed rule concerning underwriting standards for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises) relating to mortgage assets affected by Property Assessed Clean Energy (PACE) programs.

In the proposed rule, FHFA continues to maintain that first-lien PACE programs would increase the financial risks borne by mortgage holders such as the Enterprises, noting, among other objections, "FHFA is of the opinion that first-lien PACE programs allocate additional risk to mortgage holders such as the Enterprises because it is uncertain whether PACE-funded projects add value to the underlying property..."

The proposed rule would instruct the Enterprises to take any necessary actions to remove first-lien PACE obligations from their portfolio, instruct the Enterprises not to purchase any mortgage that is subject to a first-lien PACE obligation, and instruct the Enterprises not to consent to the imposition of a first-lien PACE obligation on any mortgage.

The proposed rule also outlines three alternatives that FHFA is considering, including adoption of key underwriting standards.

Comments on the proposed rule are due July 30.

NLC supports local authority to implement PACE programs and contends that the participation in the PACE program does not affect the safety and soundness of mortgages. NLC will submit comments to FHFA prior to the deadline and encourages cities and towns in the 28 states that allow PACE programs to also submit comments and to share them with NLC.

Earlier this year, FHFA sought comments on an Advance Notice of Proposed Rulemaking on adopting guidance concerning mortgages that are, or could be, affected by PACE programs. NLC, along with a number of individual cities and towns, submitted comments

The FHFA proposed rule "Enterprise Underwriting Standards" and instructions for submitting comments are available at www.federalregister.gov by searching for RIN 2590-AA53. 

Details: For additional resources, visit NLC Regulatory Advocacy - Energy or the PACENow coalition website.