HUD Reverses Policy on PACE - No Longer Insuring Mortgages with PACE Exposure

Last week, the US Department of Housing and Urban Development (HUD) announced that "Properties encumbered with PACE obligations will no longer be eligible for FHA-insured forward mortgages." This reversed a policy that was announced in 2016, allowing for mortgages encumbered with PACE obligations to be insurable. The FHA will still allow for refi mortgages that pay off PACE obligations.

The Mortgage Bankers Association (MBA) was in favor of the policy change and put out a statement. "MBA applauds HUD's announcement and fully supports these reforms. PACE liens pose a real danger to secured lenders and to the MMI [Mutual Mortgage Insurance] fund because they erode the underlying collateral due to their priority lien position in the event of default. HUD's actions today will help protect taxpayers and the FHA insurance fund, and will align FHA policy with that of Fannie Mae and Freddie Mac. "

According to PACENation, through November 2017, there have been $4.4 Billion of PACE loans issued for approximately 180,000 US residences. While this is still a small number of the over 126.2 million households in the US, the PACE market has seen a significant growth rate in the last few years.

Resources:

https://www.hud.gov/sites/dfiles/OCHCO/documents/17-18ml.pdf

https://www.mba.org/2017-press-releases/november/mba-applauds-hud-announcement-on-pace-loan-reforms

http://pacenation.us/pace-market-data/#residential

https://www.census.gov/data/tables/time-series/demo/families/households.html

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