The Property-Assessed Clean Energy (PACE) program as well as The Home Energy Renovation Opportunity (HERO) provide homeowners the ability to finance energy and water efficient upgrades. One of the key features of the programs is that the cost of the upgrades can be repaid through the homeowner’s property tax assessment. Although this is a great concept, many homeowners are finding out that things can become challenging when they refinance or sell their home. Fortunately you have options.
The notion that all lending agencies share the same guidelines is a great example of the confusion within the mortgage industry in general.
There are indeed some mortgage companies and banks that cannot provide financing on a property that is enrolled in either PACE or HERO. This limitation however is more of a limitation of the mortgage company itself and not a limitation of Freddie Mac and FHA. And even though Fannie Mae has expressly stated that they are unwilling to insure a loan that is made against a PACE or HERO property, it is inaccurate to state that Freddie Mac shares the same guidelines.
The truth is, the rules and restrictions of one lender is not necessarily the rules and restrictions of all lenders.
Unfortunately this confusion is perpetuated by the secondary market lending practices adopted by many retail mortgage banks. Here’s what I mean: Once a loan is made, a mortgage bank will typically sell the servicing to replenish warehouse capital space in order to fund new loans as well as reduce their risk of servicing too many loans. These loans are bundled and sold to companies that will collect the payments called Servicers. Many companies do not have the ability to distinguish or separate these bundles, so the loans within these bundles are underwritten to both Fannie Mae and Freddie Mac guidelines. This represents the “safest” position for the mortgage bank to operate, the flexibility to sell loans to an investor that will purchase Fannie Mae or Freddie Mac insured loans.
In a situation where Fannie Mae – one of the two largest mortgage insurers – will not allow a loan on a PACE or HERO property, a mortgage lender or bank will in turn create an “overlay” or underwriting requirement prohibiting any loan that does not fall under BOTH systems. This allows the bundle of loans to be purchased and insured by either Fannie Mae of Freddie Mac.
There are many mortgage companies, brokers, and banks that have the ability to distinguish between Fannie Mae and Freddie Mac and provide loans that are directly insured by Freddie Mac thus having no issues with PACE or HERO.
The ability to lend on PACE and HERO programs can make a huge difference in the energy bills of consumers, not to mention a better world for us all.
We actively provide Conventional and FHA financing for properties enrolled in the HERO or PACE programs. Please call or email for more information.
