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Recently Governor Jerry Brown of California spoke during a White House conference call to reporters on his frustrations with Fannie Mae and Freddie Mac and their reservations on promoting the federal loan program for home energy and improvements. He stated, “They’re stubborn, they’re unreasonable, they’re acting like East Coast bankers. I can say that, because the other politicians can’t.”
Despite this public calling out, Fannie Mae and Freddie Mac still do not get involved with mortgages on properties involved with PACE where loans are secured by priority liens on the property. Additionally Fannie Mae and Freddie Mac will not purchase mortgage loans secured by properties with outstanding PACE loans.
The FHFA cites, “While FHFA fully supports energy retrofit financing programs to allow homeowners to improve energy efficiency, these programs must be structured to ensure protection of the core financing for the home and, therefore, cannot undermine the first-lien status of Fannie Mae and Freddie Mac mortgages.”
In a public release the FHFA notes, “In issuing this statement, FHFA wants to make clear to homeowners, lenders, other financial institutions, state officials, and the public that Fannie Mae and Freddie Mac’s policies prohibit the purchase of a mortgage where the property has a first-lien PACE loan attached to it. This restriction has two potential implications for borrowers. First, a homeowner with a first-lien PACE loan cannot refinance their existing mortgage with a Fannie Mae or Freddie Mac mortgage. Second, anyone wanting to buy a home that already has a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac loan for the purchase. These restrictions may reduce the marketability of the house or require the homeowner to pay off the PACE loan before selling the house.”
FHFA states that they believe it is important for states and municipalities to understand these in place restrictions before continuing to offer these programs as well as borrowers fully understand the restrictions before taking out a first-lien PACE loan.
Brown’s frustration stems from the more than 70,000 California homeowners participating in the PACE program who have no ability to work with Fannie Mae and Freddie Mac. Brown said during the call energy upgrades would improve home values and that HUD and the Department of Veterans Affairs were “doing what Fannie and Freddie say you can’t do.”
