Property Assessed Clean Energy (PACE)

Per Mortgagee Letter 2017-18

Forward mortgages

  • Properties encumbered with PACE obligations will No longer be eligible for FHA-insured forward mortgages.
  • A refinance that pays off a PACE obligation can be considered a Rate/Term refinance.
  • Current policies allowing the use of a Cash-Out refinance to pay off PACE obligations remain unchanged.

 

HECM

  • Properties which will remain encumbered with a PACE obligation are Not eligible for FHA-insured HECM.
  • The payoff of a PACE obligation is a Mandatory Obligation and it must be paid off at closing, and may be paid off using HECM proceeds.

General:

  • Sales contracts must have a clause specifying that the PACE (HERO) obligation will be satisfied by the seller at, or prior to, closing.
  • When the appraisal is ordered the appraiser must be notified that the PACE obligation will be paid off as a condition of the loan approval. The appraiser is required to report the outstanding amount of the PACE obligation. The appraiser must analyze and report the impact on the value of the subject property from the PACE assessment being extinguished.

FINAL:

  • Properties that will remain encumbered with PACE obligation after closing are not eligible for FHA mortgage insurance.

Changes brought about by this Mortgagee Letter 2017-18 will be effective on January 1, 2018.

Please contact your Manager with any questions.