On December 7, 2017, the Department of Housing and Urban Development (HUD) announced that the Federal Housing Administration (FHA) will stop insuring mortgages on homes that also carry Property Assessed Clean Energy program (PACE) liens. In California, PACE liens are commonly marketed as the HERO program as a way for homeowners to finance solar installations and other energy-efficiency projects.
Why is keeping HERO loans away from FHA-insured mortgages a good move?
1. There is little protection for mortgages that carry HERO liens.
· HERO liens are not subject to Truth in Lending Act (TILA) laws, which were designed to protect consumers from predatory lending.
2. The liens are attached to the property itself, rather than the property owner.
· That can make it difficult for an owner to refinance or obtain a second mortgage and obstruct transfer of the property from one owner to another.
3. HERO financing is marketed by contractors, rather than mortgage lenders.
· Borrowers are approved for HERO financing without consideration of their ability to repay, and may be charged high interest rates and origination fees.
The decision to stop insuring these loans is being applauded by housing experts who care about the long-term viability of the FHA and the mortgage industry as a whole. HERO loans may seem like the easy way to make a home energy-efficient, but they are not always the best way. Now, HUD has made it official. If you have any questions, please contact Wholesale Capital Corporation.
“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. 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.”
– Ben Carson, Secretary of Housing and Urban Development
“MBA applauds HUD’s announcement and fully supports these reforms…Consumers should still be very wary of these dangerous loans, which are not yet subject to important federal consumer protection laws. In addition, consumers need to understand that PACE loans can significantly hinder their ability to later sell their house.”
– David H. Stevens, president/CEO of the Mortgage Bankers Association (MBA)
Wholesale Capital Corporation is not affiliated with or acting on behalf of or at the direction of the Federal Housing Authority (FHA), the Department of Veterans Affairs (VA), or any government agency or government-sponsored entity. WCC is licensed by the California Bureau of Real Estate, Broker License #01147747 and the California Department of Business Oversight Finance Lenders License #603K610. Also licensed in Arizona by the Arizona Department of Financial Institutions, MB #0926199. NMLS# 9873.