FHA to Halt Insuring Mortgages on Homes With Pace Assessments

WASHINGTON, Dec. 7 -- The U.S. Department of Housing and Urban Development issued the following news release:

The Federal Housing Administration (FHA) today announced it is reversing a short-lived policy announced in July of 2016 and will no longer insure new mortgages on properties that include Property Assessed Clean Energy (PACE) assessments. Read FHA's mortgagee letter (https://www.hud.gov/sites/dfiles/OCHCO/documents/17-18ml.pdf).

FHA's decision is part of a larger effort to protect the health of its Single Family Mutual Mortgage Insurance Fund (MMIF) and the borrowers who rely upon it. Last month, FHA released its latest annual report on the fiscal health of the MMIF finding the Fund had a total economic net worth of $25.6 billion and the Capital Ratio that remains above the statutory minimum for a third straight year. Read more about FHA's FY2017 Annual Report (https://mgmt.hud.gov/press/press_releases_media_advisories/2017/HUDNo_17-100).

"FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default," said U.S. Housing and Urban Development (HUD) Secretary Ben Carson. "Assessments such as these are potentially dangerous for our Mutual Mortgage Insurance Fund and may have serious consequences on a consumer's ability to repay, or when they attempt to refinance their mortgage or sell their home."

FHA is also very concerned about PACE obligations being placed on FHA-insured mortgages that are already outstanding. The post-endorsement placement of these assessments on an FHA-insured mortgage creates a lack of transparency making it difficult for the agency to understand the true nature of the risks involved. In addition, such activity is risky for FHA borrowers and potentially violates the terms of their FHA-insured mortgage. FHA intends to monitor this carefully to determine whether further action is warranted.