PACE loans may qualify for Homeowner Assistance Fund money

Borrowers with trouble paying Property Assessed Clean Energy loans might be able to get help from the Homeowner Assistance Fund, according to a recent Treasury report.

The report issued Monday added "payment assistance or principal reduction" for PACE loans to the list of qualified expenses for the fund that states distributing the money could authorize under certain circumstances.

The money should only be used when "such expenditures would promote housing stability and prevent foreclosures or homeowner displacement" in line with the fund's broader purpose to ease the transition away from pandemic-related housing relief.

It was unclear at press time whether any jurisdiction had authorized the use of Homeowner Assistance Fund money to repay PACE loans

"We don't know of any states that have approved it explicitly," said Stockton Williams, executive director of the National Council of State Housing Agencies.

A handful of states have already exhausted their money from the fund, which has been in operation for more than two years. Others may be closing programs, or have temporarily suspended them. Nebraska, for example, has plans to shut down its program on June 30, Pennsylvania's has been suspended since early February and Oregon's went on hiatus on May 31. However, many state programs also remain open, according to the NCHSA.

The new funds authorization may help reduce one concern for servicers in states with programs that are still open and allow it: that a PACE lien could undermine their right to claim a home as collateral from distressed borrowers. 

Borrowers pay PACE loans, which finance renewable energy projects like solar panels and travel with the property, through assessments. Thus, they generally have the same kind of lien on them as taxes: one that supersedes all others, including claims on first mortgages.

Exceptions, however, exist. Legislation in Ohio, for example, is changing the PACE lien priority for residential mortgages.

States like Ohio and some federal regulators like the Consumer Financial Protection Bureau have shown concern that in some cases PACE lending practices have been predatory. The CFPB recently proposed new guardrails for this type of financing to address the concern.

Government-sponsored enterprises Fannie Mae and Freddie Mac won't buy and back mortgages on properties with PACE financing unless the lien on the latter is subordinate.

The Federal Housing Administration does not currently allow this type financing when it insures a mortgage unless the loan will be paid off at or prior to closing.