The Department of Housing and Urban Development announced earlier this week that the Federal Housing Administration will no longer insure properties with Property Assessed Clean Energy assessments, winning praise from the National Association of Realtors®.

“FHA’s PACE announcement is a smart step that will protect taxpayers and strengthen the overall program for homebuyers,” said NAR President Elizabeth Mendenhall.

PACE programs allow local governments to provide homeowners with the financial resources to make energy improvements to their home. Homeowners then pay back the money through an assessment on their property tax bill. While NAR generally supports voluntary efforts to drive energy efficiency, NAR raised a series of concerns throughout the year and pushed for HUD’s shifting policy on PACE loans.

In a letter to HUD, NAR said that PACE loans typically aren’t accompanied by the same disclosures and protections as home mortgages. As a result, real estate professionals said this new financial obligation could potentially lead to a higher risk of borrower delinquency. Ultimately, NAR said that made it possible that FHA would incur higher mortgage defaults, putting systemic risk on the program.

The announcement this week marks an important policy shift at FHA, echoing many of NAR’s overarching concerns.

“FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default,” said HUD Secretary Ben Carson. “Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer’s ability to repay, or when they attempt to refinance their mortgage or sell their home.”

Mendenhall agreed, adding that while Realtors® support the goals of efficiency efforts, FHA’s announcement is needed.

“NAR supports voluntary, incentive-based programs that encourage homeowners to make their property more energy efficient, but not at the expense of FHA or the strength of its portfolio,” said Mendenhall. “NAR pushed for this change and we applaud FHA’s attention to the issue.”

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