ABA Calls for ATR Requirements for Residential PACE Loans

The American Bankers Association yesterday responded to the Federal Housing Finance Agency’s request for information on what it can do to address the threat that residential Property Assessed Clean Energy, or PACE loans, for energy-efficient retrofitting can pose to homeowners and the housing finance system. These loans are financed through tax assessments and often take super priority over existing and subsequent first mortgage liens, and FHFA has long warned that Fannie Mae and Freddie Mac cannot buy mortgages on homes with a  super priority lien PACE loan attached to it.

While ABA recognizes the rationale for FHFA’s proposed additional measures—such as directing the GSEs to reduce loan-to-value ratios or increase loan-level price adjustments on new loan purchases in states or localities where PACE loans are available—the association cautioned that most of them would be overly burdensome and ultimately lead to fewer choices and higher costs for borrowers.

ABA noted that legislation passed in the last Congress requires the Consumer Financial Protection Bureau to apply ability-to-repay requirements to residential PACE loans, and urged FHFA to engage with CFPB to move that rulemaking along —a key step toward protecting borrowers from some of the more troubling aspects of PACE loans, the association said.