FHA stops lending on homes with energy-efficient PACE liens
Q. We bought our home in 2015 with a Federal Housing Administration loan, then added a new solar-panel system and made some other energy-saving improvements with a PACE loan earlier this year. Now we’ve heard that the FHA will no longer insure mortgages that have a PACE assessment. So where does that leave us? Are we going to have to refinance our current FHA mortgage with a non-FHA lender?
A. Don’t worry. Although the federal government recently announced it will no longer provide FHA loans on properties that also are encumbered by a PACE lien, the new policy won’t affect homeowners who already have a PACE assessment in place.
PACE loans were created several years ago to fund energy-efficient home improvements. The various programs are typically operated by local governments but funded by private-sector banks or other companies.
These offbeat loans usually don’t require any monthly payments. Instead, the regularly scheduled payments are tacked on to borrowers’ property-tax bills, and the owners pay them as line items when their annual or semiannual bills come due, just as they would for street improvements and the like.
The repayment process, though, can lead to some serious problems.
The first is that if the tax bill goes into default and the tax collector must foreclose, the PACE lien must be paid off first from the tax sale’s proceeds. The lender that issued the 30-year mortgage for the borrower to purchase the house earlier would get only second dibs on the proceeds from the sale, which means the lender would suffer a loss if the property didn’t sell for a price that’s high enough to cover the PACE loan, the original mortgage and related costs.
In many instances, even if sellers with a PACE lien can find a buyer before going into foreclosure, the lien is effectively transferred to the new buyers. The buyers then are obligated to make those payments through their property-tax bills, again putting the bank that issued the purchase mortgage at risk if the buyers default later.
The FHA’s home-loan program is financed by government funds, which means the program depends on taxpayer dollars. When the FHA loses money on the sale of a home, all of us do. The FHA acknowledged that fact when announcing its new restrictions on PACE-encumbered properties earlier this month, noting in a statement that the agency “can no longer tolerate putting taxpayers at risk by allowing [lien] obligations like these to be placed ahead of the mortgage itself in the event of a default.”
Most consumer groups applauded the FHA’s decision but said the agency needs to go much further. Their wish list includes a lower cap on the rate that PACE lenders can charge, better state and federal regulations, and a ban on contractors and salespeople who make unfounded promises that the cost of the owner’s energy-saving improvements will soon be recouped through lower monthly utility bills.
Q. What is a “one-hour door”?
A. It’s a fire-resistant door that can hold back a blaze for a minimum of 60 minutes. Some manufacturers and builders also offer one-hour walls.
Q. My kids and I drove across the country for our fall vacation this year and passed through a town in Texas called Turkey. We didn’t see any turkeys there. What gives?
A. There still are some turkeys around there, even if you didn’t see them. The Texas Panhandle town (population 400) was named by settlers in the 1890s, who were greeted by huge flocks of the big birds from nearby Turkey Creek.
The tiny town is best-known as the home of the late country singer Bob Wills, “the King of Western Swing.”
Turkey is also one of the more than 100 U.S. towns whose names might have appeared in your holiday feast. If you enjoyed a smaller dinner, you might want to visit Chicken, Alaska. Or you might want to get a nice slab of ham in Pig, Kentucky.
No great meal can begin without an appetizer. Start with a fruit plate from Citrus Heights, California, and cheeses from the fine cities of Colby, Wisconsin, and Monterey, California. They’re good with a glass of bubbly from Champaign, Illinois.
A crisp green salad would be nice, which is where Cucumber, West Virginia, comes in. Top it with the zesty red dressing of Catalina, the tiny island city off the coast of Southern California.
Of course, you’ll need to have some side dishes to complement the entree. Corn, Oklahoma, would be a good place to start, or maybe Spuds, Florida; Rice, Texas; or Fries, Virginia.
Dessert could come from Cookietown or Pietown, both in New Mexico. They also make terrific sweet treats in Sugar Land, Texas. Wash them down with a cup of java from Hot Coffee, Mississippi, or a spot of tea from Tea, South Dakota.
Send questions to David Myers, P.O. Box 4405, Culver City, CA 90231-2960, and we’ll try to respond in a future column.