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REALTORS® are concerned about the recent announcement by the U.S. Department of Housing and Urban Development (HUD) that the Federal Housing Administration (FHA) will begin insuring mortgages on certain properties with Property Assessed Clean Energy (PACE) loans. REALTOR® officials say there ought to be more disclosures regarding the risks associated with PACE loans.
A PACE loan allows a homeowner to borrow money to finance energy upgrades. The loan is repaid as a surcharge on the property tax. The PACE loan takes primary position to the mortgage. If the cost of repaying the PACE loan and any mortgages on the property exceeds the home’s purchase price, the seller will be forced to make up the difference.
California Association of REALTORS® President Pat “Ziggy” Zicarelli said in a statement, “Although C.A.R. supports voluntary consumer-friendly energy improvement programs for homeowners, C.A.R. believes that HUD was ill advised to approve placing PACE loans in a senior position to FHA first mortgages. Doing so places FHA homebuyers and taxpayers at risk and does homeowners a disservice by approving a loan product without consumer protections and which is aggressively sold to homeowners who rely on FHA financing for safe and affordable mortgages.”
REALTORS® say PACE loans are unfairly expensive and carry higher interest rates than the first mortgage or a home equity loan. “This loan product has no minimum disclosures, no underwriting of the borrower, no proof that the borrower has the ability to repay, no three-day right to rescind, no marketing limitations, no interest rate or fee caps, no kickback prohibitions; nothing,” added Zicarelli.
The Federal Housing Finance Agency (FHFA) and conservator of Fannie Mae and Freddie Mac prohibits PACE loans to be placed in a senior position to the mortgage. Both the FHA and Fannie Mae currently offer mortgage financing that allows borrowers to finance energy efficiency improvements at lower rates than PACE liens. HUD’s announcement, which is contrary to FHFA’s current policy will only confuse homeowners, homebuyers, REALTORS®, lenders, escrow, title and the housing market overall.
The National Association of REALTORS® also expressed its concern, especially with regard to delinquent foreclosed properties. “A foreclosed property with a PACE loan in the primary position will likely remain on the market longer than it should, further increasing uncertainty in mortgage markets and placing unnecessary pressure on homeowners,” NAR President Tom Salomone said in a statement.
Karen Trolan, president of the Silicon Valley Association of REALTORS®, said, “Now, more than ever, the California legislature must pass AB 2693 (Dababneh), a C.A.R.-sponsored bill that would ensure consumers are aware of the consequences of PACE loans and have the opportunity to rescind after a three-day cooling off period. Current disclosures given to home buyers do not explain the potential consequences of using PACE loans. AB 2693 will require Truth in Lending type disclosures to borrowers.”
Members of the Silicon Valley Association of REALTORS®, Santa Clara County Association of REALTORS® and San Mateo County Association of REALTORS® met with U.S. Representative Anna Eshoo.
Members asked their representatives in Congress to:
1. Restructure Fannie Mae & Freddie Mac and Encourage the Return of Private Capital. Members requested that the chairmen of the House Financial Services Committee and the Senate Banking Committee hold hearings that focus on restructuring the secondary mortgage market, and that the emphasis of these hearings be the crafting of comprehensive bipartisan legislation that resolves the conservatorship of Fannie Mae and Freddie Mac. They stressed an efficient and adequately regulated secondary market is essential to providing affordable mortgages to consumers; that the federal government must clearly, and explicitly, offer a guarantee of some mortgage instruments; and that the government’s guarantee should ensure a wide range of safe, reliable mortgage products for creditworthy consumers.
2. Preserve homeownership tax policies. As Congress considers proposals to reform the federal tax code, SILVAR REALTORS® said lawmakers should consider the vital role that real estate tax provisions play in the nation’s housing markets and economy, as well as the financial well-being of Americans and their families. As real estate markets continue to recover, Congress must first do no harm to the following:
• Mortgage Interest Deduction: Oppose efforts to change or eliminate the mortgage interest deduction for primary and second homes.
• Property Tax Deduction: Property taxes paid are properly not considered “income” that should be subject to federal income tax. Congress should not tax “income” that doesn’t exist and oppose elimination of the deduction for property taxes.
• Capital Gains Exclusion for Sale of Principal Residence: Individuals can exclude the first $250,000 (and married couples the first $500,000) of gain from the sale of their principal residence from capital gains tax. This provision allows homeowners to build equity and save for retirement and should be maintained.
3. Preserve the Mission and Purpose of the FHA Program. SILVAR REALTORS® asked their representatives to ensure that the Federal Housing Administration (FHA) single-family
program has the tools and policies in place to meet its mission of access to safe, affordable mortgage financing to qualified borrowers nationwide. They said FHA’s single-family mortgage insurance program helps preserve private financing options for homebuyers regardless of local, regional or national economic conditions. They asked that the legislators continue support for H.R. 1145 (Waters (D-CA), Capuano (D-MA)), which provides FHA with the flexibility to make necessary changes to the program, provides taxpayer protections against lenders who make errors of material fact, and improves program oversight. They asked that Congress provide FHA with tools, but also protect FHA from any further restrictive requirements that keep more people out of the program.
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Silicon Valley Association of REALTORS® says ... 