Last week, the Federal Housing Administration (FHA) announced it will stop insuring new mortgages on homes with property assessed clean energy (PACE) loans. As to what motivated its decision—according to its letter to the U.S. Department of Housing and Urban Development—the FHA is “concerned with the lack of consumer protections associated with the origination of the PACE assessment, which are far less comprehensive than that of traditional mortgage financing products.” This announcement directly contradicts guidance issued by the FHA in 2016.
Rocky Mountain Institute feels this decision is misguided for three key reasons.
- The FHA overstates the risk of PACE to taxpayers while failing to acknowledge or account for the significant default risk that the excessive energy expenditures of inefficient homes can create for a homeowner.
- This will inhibit homeowners from making valuable home improvements, while curbing PACE’s job-creation potential in the construction and renovation industry.
- It undermines existing state-level consumer-protection standards that are in place and federal standards that are in development, and may in fact guide homeowners toward more risky financing solutions, such as high-interest rate credit cards, that lack such standards.