Property Assessed Clean Energy (PACE) Program, 2736-2740 [2020-00655]
Download as PDF
2736
Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices
DEPARTMENT OF ENERGY
Federal Energy Regulatory
Commission
[Docket No. RM16–17–000]
Data Collection for Analytics and
Surveillance and Market-Based Rate
Purposes; Notice Providing Update on
Market-Based Rate Database
On July 18, 2019, the Commission
issued a final rule in Docket No. RM16–
17–000 that, among other things,
adopted a proposal to collect marketbased rate information through a
relational database (MBR Database).1
The final rule indicated that:
khammond on DSKJM1Z7X2PROD with NOTICES
After issuance of this final rule,
documentation for the relational database
will be posted to the Commission’s website,
including XML, XSD, the MBR Data
Dictionary, and a test environment user
guide. Additionally, after issuance of this
final rule, a basic relational database test
environment will be available to submitters
and software developers. The Commission
intends to add to the new test environment
features on a prioritized, scheduled basis
until complete. We note that the Commission
will inform the public of when releases will
be made publicly available. This will allow
internal and external development to occur
contemporaneously as new features are made
available for outside testing.2
Consistent with the final rule, please
be advised that updated versions of the
XML, XSD, and MBR Data Dictionary
are available on the Commission’s
website.
Additionally, please be advised that
the test environment for the MBR
Database is now available and can be
accessed on the MBR Database web
page. At launch, this test environment
will be available to users that are
eRegistered with the Commission.
eRegistered users will be able to submit
test XML submissions into the database,
as well as create FERC generated IDs
(GID) and Asset IDs. Please note that
this is a test environment and that all
submissions into the database—
specifically XMLs and all created GIDs
and Asset IDs—will not be part of the
official record and will be cleared from
the database before it officially goes live.
Further, as indicated in the final rule,
the Commission intends to add features
to this test environment periodically
until complete.3 Interested parties can
obtain notice of these new features by
monitoring the market-based rate page
on the Commission’s website. The
1 Data Collection for Analytics and Surveillance
and Market-Based Rate Purposes, Order No. 860,
168 FERC 61,039 (2019).
2 Id. P 309.
3 Id.
VerDate Sep<11>2014
17:49 Jan 15, 2020
Jkt 250001
Commission will issue an additional
notice prior to clearing the database
shortly before the database goes live.
Lastly, please be advised that
Company Registration has been updated
to reflect MBR as a filing type. Unlike
GIDs and Asset IDs, any updates to
Company Registration will remain
permanent. Entities that will need to
make submissions to the database (i.e.,
all entities that have market-based rate
authority) must include MBR as a filing
type and assign account managers to
make the submissions.
For more information about the MBR
Database, please send an email to
MBRDatabase@ferc.gov.
Dated: January 10, 2020.
Kimberly D. Bose,
Secretary.
[FR Doc. 2020–00622 Filed 1–15–20; 8:45 am]
BILLING CODE 6717–01–P
FEDERAL HOUSING FINANCE
AGENCY
[No. 2020–N–1]
Property Assessed Clean Energy
(PACE) Program
AGENCY:
Federal Housing Finance
Agency.
ACTION: Notice and Request for Input.
The Federal Housing Finance
Agency (FHFA), as regulator for Fannie
Mae and Freddie Mac as well as the
Federal Home Loan Banks, seeks public
input on residential energy retrofitting
programs financed through special state
legislation enabling a ‘‘super-priority
lien’’ over existing and subsequent first
mortgages. In particular, FHFA seeks
input on potential changes to its
policies for its regulated entities based
on safety and soundness concerns.
These state programs, termed Property
Assessed Clean Energy or PACE,
address residential properties and
commercial applications. FHFA’s
primary focus is on residential PACE
programs in this Request for Input (RFI).
DATES: Written input must be received
by March 16, 2020.
ADDRESSES: You may submit your
response on the Notice identified by
‘‘PACE Request for Input, Notice No.
2020–N–1,’’ by any one of the following
methods:
• Agency Website: www.fhfa.gov/
open-for-comment-or-input.
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting input. If you
submit your response to the Federal
eRulemaking Portal, please also send it
SUMMARY:
PO 00000
Frm 00044
Fmt 4703
Sfmt 4703
by email to FHFA at RegComments@
fhfa.gov to ensure timely receipt by the
agency.
• Mail/Hand Delivery: Federal
Housing Finance Agency, Eighth Floor,
400 Seventh Street SW, Washington, DC
20219, ATTENTION: ‘‘PACE Request for
Input, Notice No. 2020–N–1.’’
FHFA will post all public responses
received without change, including any
personal information you provide, such
as your name and address, email
address, and telephone number, on the
FHFA website at https://www.fhfa.gov. In
addition, copies of all responses
received will be available for
examination by the public through the
electronic docket for this Notice also
located on the FHFA website.
FOR FURTHER INFORMATION CONTACT:
Alfred M. Pollard, General Counsel,
Alfred.Pollard@fhfa.gov, (202) 649–3050
(this is not a toll-free number), Federal
Housing Finance Agency, 400 Seventh
Street SW, Washington, DC 20219. The
Telecommunications Device for the Deaf
is (800) 877–8339.
SUPPLEMENTARY INFORMATION:
Request for Input
A. PACE Programs
The Federal Housing Finance Agency
(FHFA), as regulator for Fannie Mae and
Freddie Mac (the Enterprises) as well as
the Federal Home Loan Banks, seeks
public input on residential energy
retrofitting programs financed through
special state legislation enabling a
‘‘super-priority lien’’ over existing and
subsequent first mortgages. In
particular, FHFA seeks input on
potential changes to its policies for its
regulated entities based on safety and
soundness concerns. These state
programs, termed Property Assessed
Clean Energy or PACE, address
residential properties and commercial
applications. FHFA’s primary focus is
on residential PACE programs in this
Request for Input (RFI).
These state initiatives authorize
counties, municipalities and other
government entities to create a financing
scheme with, in the majority of cases,
private parties administering the home
energy retrofit programs. The programs
lend to consumers for defined products
and services and approved contractors.
To attract private capital, the loans
impose a tax assessment on the property
so that the loan is repaid under a
locality’s taxing structure to the benefit
of bond holders or lenders. This assures
priority status over any first lien
mortgage at any tax sale or foreclosure
sale. PACE is not traditional second
mortgage or home equity lending.
E:\FR\FM\16JAN1.SGM
16JAN1
khammond on DSKJM1Z7X2PROD with NOTICES
Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices
Each PACE lending program was
created to attract private investors to
provide funds for loans for energy
retrofits. Unlike normal secured home
improvement financing, the PACE
program seeks to secure a super-priority
first lien over all other lien holders on
a property through a governmental
property tax lien. As the financing
concept provides that the lien,
associated with the PACE loan, ‘‘runs’’
with the property, this proves attractive
to investors who provide PACE program
funding. With a super-priority lien
position, the risk of investor loss
becomes very small as that lien has
priority over pre-existing first mortgages
and has the possibility of continuing to
run with the property to a subsequent
purchaser. This investor opportunity
comes at the expense of existing lien
holders, who have not had the ability to
consent or not consent to the new lien
and unexpectedly bear a new risk of loss
that did not exist at the time the
mortgage was originated.
As a tax-related assessment, the PACE
loan is fundamentally asset-based
lending that ‘‘runs with the land.’’ This
means a purchaser of a home with an
existing PACE loan assumes the
outstanding obligation and any unpaid
or delinquent amounts. Despite the
benefit of highest priority lien position,
interest rates charged to borrowers for
PACE are typically substantially higher
than for a first-lien mortgage. Purchasers
may not wish to acquire such
obligations where the PACE interest rate
is higher than their purchase loan rate
or the improvements are out of date or
in need of repair. State laws provide for
localities to collect administrative fees
of up to 10 percent of the loan amount
usually added to the loan amount, and
for lending amounts tied not to
borrower’s ‘‘ability to repay,’’ but to the
property and its assessment up to 15
percent of the assessed value. The
holder of such a lien may move for
foreclosure on the property or the tax
administrator may do so and recover the
unpaid amount of the PACE loan; other
parties recover what remains.
Such loans are not recorded in local
land records but in tax records and may
bear a denomination other than PACE
such as an abbreviated PACE program
name. Such tax records usually list the
amount of the loan and the amount
paid, but do not provide distinctions on
principal and interest. They are not part
of ordinary mortgage record searches.
Some PACE programs claim that
PACE loans do not affect debt-to-income
(DTI) ratios, an important benchmark for
consumers and lenders. The Enterprises
require lenders to include homeowner
property tax payments that would
VerDate Sep<11>2014
17:49 Jan 15, 2020
Jkt 250001
include PACE assessments as a
component of the loan applicant’s
present or future housing expense to
calculate DTI for loan eligibility.
Unavailable data on DTI may permit a
homeowner to incur more debt with
lenders unaware of the PACE obligation
due to a lack of DTI information or
potentially inaccurate credit scores.
Because PACE loans are not recorded in
land records but in tax rolls, often with
varying names or descriptions, they are
difficult to identify in title searches.
Finally, PACE programs lack
uniformity and may differ in every
community within a state, making it
challenging for lenders to evaluate the
implications for individual homeowners
or home purchasers.
B. FHFA, Financial Regulators and
Super-Priority Liens
In 2010, FHFA, the Office of the
Comptroller of the Currency (OCC), the
National Credit Union Administration
and the Federal Deposit Insurance
Corporation highlighted the risks
attendant to PACE lending.1
Fundamentally, the priming of a first
mortgage was and remains the central
issue. FHFA directed Fannie Mae and
Freddie Mac not to purchase or refinance mortgages with PACE liens and
reserved other potential actions. The
Federal Home Loan Banks were alerted
to the need for vigilance in accepting
collateral for advances that may have
PACE liens attached. FHFA
determinations regarding residential
PACE loan programs have been upheld
in three Circuit Court decisions.2
In 2014, FHFA re-stated its concerns
regarding PACE and other ‘‘lienpriming’’ programs.3 In its public
statement of December 22, 2014, FHFA
summarized that—
The existence of these super-priority liens
increases the risk of losses to taxpayers.
Fannie Mae and Freddie Mac, while
1 For example, in OCC’s Supervisory Guidance,
OCC 2010–25 (July 6, 2010) at https://www.occ.gov/
news-issuances/bulletins/2010/bulletin-201025.html, the OCC emphasized that beside loans,
banks investing in mortgage backed securities
should take into account PACE programs in their
asset valuations and to consider the impact of PACE
programs on their institutions and the markets
when making any decision on ‘‘associated bond
underwriting.’’ Overall, OCC indicated it
considered programs that failed to ‘‘observe existing
lien preference’’ to pose ‘‘significant regulatory and
safety and soundness concerns.’’
2 See County of Sonoma v. FHFA, 710 F.3d 987
(9th Cir. 2013); Leon County v. FHFA, 700 F.3d
1273 (11th Cir. 2012); and Town of Babylon v.
FHFA, 699 F.3d 221 (2nd Cir. 2012) (appeal of
consolidated cases, after granting of motions to
dismiss in the Southern and Eastern Districts of
New York).
3 https://www.fhfa.gov/Media/PublicAffairs/
Pages/Statement-of-the-Federal-Housing-FinanceAgency-on-Certain-Super-Priority-Liens.aspx.
PO 00000
Frm 00045
Fmt 4703
Sfmt 4703
2737
operating in conservatorship, currently
support the housing finance market by
purchasing, guaranteeing, and securitizing
single-family mortgages. One of the bedrock
principles in this process is that the
mortgages supported by Fannie Mae and
Freddie Mac must remain in first-lien
position, meaning that they have first priority
in receiving the proceeds from selling a
house in foreclosure. As a result, any lien
from a loan added after origination should
not be able to jump in line ahead of a Fannie
Mae or Freddie Mac mortgage to collect the
proceeds of the sale of a foreclosed property.
Enterprise programs support the
ability of a borrower to purchase a home
and the Enterprise mortgage is recorded
in first-lien position. A PACE loan is
only available to someone who owns a
home. In the vast majority of cases,
home ownership is obtained by a
mortgage loan in which a lender has
placed a substantial amount of capital at
risk. For the Enterprises, this means up
to $510,400 or, in high cost areas, up to
$765,600 to provide homeownership
opportunities. Accordingly, the
Enterprises require that the mortgage
loans they purchase remain in a firstlien position for the life of the loan.4
Also, the congressional charters for the
Enterprises require borrowers to have at
least 20 percent equity in a home or an
approved form of credit enhancement,
such as mortgage insurance, to address
the risk of nonpayment. A municipality
providing ‘‘super-priority’’ lien status
for a PACE loan can erode—partially or
completely—that 20 percent equity
cushion, as required by statute, and
place either the homeowner or a
regulated entity, or both, at substantial
risk.
PACE programs present a threat to the
quality and stability of large amounts of
Enterprise loans. According to Fannie
Mae and Freddie Mac, in mid-2019 in
California and Florida, the two most
active residential PACE jurisdictions,
the Enterprises had over 5.4 million
loans with unpaid principal balances of
approximately $1.18 trillion. These bear
a risk of impairment by super-priority
PACE loans that the Enterprises clearly
stated in their loan instruments must be
avoided. Further, these loans, that ‘‘run
with the land,’’ impair the foreclosure
process when that is an unavoidable
outcome to the benefit of PACE
investors.
Consumer issues have surrounded the
PACE programs from their inception.
These include the cost of funding,
contractor sales techniques (notably,
responding to a limited homeowner
4 Enterprise loans are packaged into mortgage
backed securities and purchased by investors which
supports housing finance; investors rely on the
underlying loan pool in making their purchases.
E:\FR\FM\16JAN1.SGM
16JAN1
2738
Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
problem and marketing a full house
retrofit), rolling the administrative fees
for the county into the PACE loan
amount, product sales at above market
interest rates, workmanship issues,
inadequate disclosures and
indiscriminate lending regardless of
ability to repay.5 Consumer protections
at the state level for PACE lending are
uneven and in some instances nonexistent. Multiple reports exist of
pressure on homeowners with PACE
liens to pay off the PACE loans in order
to sell their homes, either to permit the
purchaser to secure financing or because
the purchaser does not want to be
saddled with a loan with an interest rate
that can be double the rate of a new
mortgage.6 Borrower demands for pay
offs have occurred independent of
positions taken by FHFA.
Recognizing consumer issues,
Congress in 2018 enacted amendments
to the Truth in Lending Act to require
federal regulation when PACE loans are
made to assure more effective consumer
protections, focused on ability to repay
requirements. The law did not mandate
that such properties impacted by such
loans serve as collateral for mortgage
loans made, purchased or authorized by
any primary or secondary market
participant. The Consumer Financial
Protection Bureau was entrusted with
implementing this law by regulation.7
5 California enacted into law AB 1284 (California
Financing Law) in 2017. The California Department
of Business Oversight offered two opportunities for
public input in November 30, 2017 and April 19,
2018 regarding its rulemaking under the law for
licensure, program administration, consumer
related provisions and cost benefit analysis of its
rules. See https://www.dbo.ca.gov/Licensees/PACE/.
Materials presented to the legislature and to the
California Department of Business Operations
provide significant information of consumer
problems relating to PACE, including descriptions
of individual consumer issues with PACE
administrators and their contractors and with the
impact on selling their homes. As well, information
on the effectiveness of individual products and how
quickly homeowners receive benefits in excess of
the loan payments (on higher cost loans) have been
questioned and led to federal legislation on
disclosure requirements. Additionally, real estate
professionals have commented on the problems of
selling homes with PACE liens.
6 Id. Consumer advocacy groups have highlighted,
along with repeated newspaper reports, that this
dilemma exists for homeowners with PACE liens.
Consumer complaints involving PACE loans on a
range of complaints have been detailed; see, for
example, National Consumer Law Center,
Residential Property Assessed Clean Energy Loans:
The Perils of Easy Money for Clean Energy
Improvements (September 2017), pp. 5–17.
7 Public Law 115–174 (2018), section 307;
codified at 15 U.S.C. 1639c(b)(3)(C). Also, Bureau
of Consumer Financial Protection, Advance Notice
of Proposed Rulemaking on Residential Property
Assessed Clean Energy Financing, 84 FR 8479
(March 8, 2019).
VerDate Sep<11>2014
17:49 Jan 15, 2020
Jkt 250001
C. Financing Energy Retrofitting
FHFA and other federal regulators
support financing for residential energy
retrofitting, where appropriate, and, in
many instances, that an actual consumer
benefit exists as documented by an
energy saving report. Such lending, by
regulated financial institutions, is
undertaken with strict attention to
ability to repay rules, safety and
soundness prescriptions and other
elements of the robust range of federal
and state consumer protection
provisions. Properly underwritten loans
provide sustainable interest rates,
consider the financial position of a
homeowner and provide mortgage
makers and mortgage investors a reliable
product for purchase. At the same time
PACE financing encumbers the
foreclosure process with an obligation
that ‘‘runs with the land’’ where normal
foreclosure ends claims against the
property.
The Department of Housing and
Urban Development (HUD) has taken
initial steps to address some of the same
concerns described above. On December
7, 2017, HUD issued a Mortgagee Letter
announcing that the Federal Housing
Administration (FHA) will no longer
insure new mortgages on properties that
include PACE assessments, citing
concerns about the potential for
increased losses to the Mutual Mortgage
Insurance Fund (MMI Fund) due to the
priority lien status given to such
assessments.8
Despite restricting FHA insurance for
properties already encumbered by PACE
assessments, nothing prevents a FHAinsured borrower from acquiring a
PACE loan in the future. HUD considers
PACE assessments as potentially
dangerous to the MMI Fund and,
further, placing these assessments on
FHA-insured properties postendorsement creates a lack of
transparency making it difficult for the
agency to understand the true nature of
the risks involved.9 HUD has indicated
that it is unknown how many existing
FHA borrowers have taken out PACE
loans and has expressed concern that
FHA is not in a first lien position.10
Allowing PACE assessments to
essentially subordinate the FHA-insured
mortgage creates a default under the
8 U.S. Dep’t of Hous. and Urban Dev., Mortgagee
Letter 2017–18 (Dec. 7, 2017).
9 Press Release, U.S. Dep’t of Hous. and Urban
Dev., FHA to Halt Insuring Mortgages on Homes
with PACE Assessments (Dec. 7, 2017) https://
archives.hud.gov/news/2017/pr17-111.cfm.
10 An Examination of the Federal Housing
Administration and Its Impact on Homeownership
in America: Hearing Before the Subcomm. on
Hous., Cmty Dev., and Ins. Of the H. Comm. on Fin.
Serv., 116th Cong. (Dec. 5, 2019).
PO 00000
Frm 00046
Fmt 4703
Sfmt 4703
mortgage and is particularly problematic
for HUD and FHA as the MMI Fund is
exposed to unmeasurable risk.
D. Actions by the Federal Housing
Finance Agency
The continuation of PACE programs
and their adverse impact merits review
for potential modification by FHFA of
its safety and soundness and prudential
standard directions to its regulated
entities.
In its 2010 statement on PACE
programs and in its directions to Fannie
Mae and Freddie Mac, FHFA indicated
that the Enterprises could undertake
certain actions, including but not
limited to, adjusting loan-to-value ratios
to reflect the maximum permissible
PACE loan amounts available to
borrowers in jurisdictions with PACE
program, requiring in loan agreements
that a PACE loan may only be made in
relation to an Enterprise purchased
mortgage with the consent of the
Enterprise, tightening debt-to-income
ratios to account for additional borrower
obligations associated with PACE loans
and such other actions as would be
appropriate. The Federal Home Loan
Banks were advised to consider their
acceptance of collateral that might be
affected by PACE loans as a prudent
safety and soundness practice.
The most direct action taken was by
the Enterprises issuing bulletins and
updates to their seller-servicer guides to
indicate the Enterprises would not make
or refinance a mortgage loan for a
property encumbered by a PACE lien.11
This Request for Input asks for public
comment on enhancing the actions to be
taken regarding PACE liens in light of
their continued threat to first lien
mortgages and to homeowners and
home purchasers from the lien priming
effects of PACE loans.12 Such actions
11 Fannie Mae Selling Guide (May 1, 2019),
Lender Letter (September 18, 2009), and
announcements (February 27, 2018; December 1,
2010; August 31, 2010): https://
www.fanniemae.com/content/guide/selling/b5/3.4/
01.html, https://www.fanniemae.com/content/
announcement/ll0709.pdf, https://
www.fanniemae.com/content/announcement/
sel1802.pdf, https://www.fanniemae.com/content/
announcement/sel1016.pdf, https://
www.fanniemae.com/content/announcement/
sel1012.pdf.
Freddie Mac Single-Family Seller/Servicer Guide
(May 1, 2019), Freddie Mac Single-Family
Refinancing and Energy Retrofit Programs page,
Selling Guide Bulletin (August 24, 2016), Lender
Letter (August 20, 2014): https://
guide.freddiemac.com/app/guide/section/4301.4,
https://sf.freddiemac.com/general/refinancing-andenergy-retrofit-programs, https://
guide.freddiemac.com/app/guide/bulletin/2016-16.
12 In certain related cases, focused mainly but not
exclusively on conservatorship authorities, courts
have made clear that both Enterprise guides and
actions by FHFA regarding PACE are appropriate
E:\FR\FM\16JAN1.SGM
16JAN1
Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
are founded on FHFA’s regulatory
authorities relating to safety and
soundness and the prudential
authorities enunciated in the Housing
and Economic Recovery Act of 2008.13
FHFA, therefore, asks for public input
on the following questions:
1. Should FHFA direct the Enterprises
to decrease loan-to-value ratios for all
new loan purchases in states or in
communities where PACE loans are
available? By how much should
available loan-to-value ratios be reduced
to address the increased risk of such
liens being placed on the property and
what related implications would result
from such actions? Should loan-to-value
(LTV) ratios be reduced for all loan
purchases sufficient to take into account
the maximum amount of a PACE
financing available in that community?
Should potential future increases in
permitted percentage of available PACE
financing-to-assessed value be
considered?
2. Should FHFA direct the Enterprises
to increase their Loan Level Price
Adjustments (LLPAs) or require other
credit enhancements for mortgage loans
or re-financings in communities with
available PACE financing? What
increased levels would be appropriate
for such LLPAs in light of the risks of
PACE financing posed to the
Enterprises?
3. Should FHFA consider other
actions regarding Enterprise purchase or
servicing requirements in jurisdictions
with PACE programs?
4. Should FHFA establish safety and
soundness standards for the Federal
Home Loan Banks to accept as eligible
advance collateral mortgage loans in
communities where PACE loans are
available? How might those standards
best address the increased risk of such
collateral? Should such standards be in
line with actions that FHFA would
undertake for the Enterprises,
recognizing the difference in business
structures between the Enterprises and
the Banks?
and preemptive of state authorities, including state
taxing authorities. See e.g., Berezovsky v. Moniz,
869 F.3d 923 (9th Cir. 201) (HOA priority liens);
FHFA v. City of Chicago, 962 F.Supp.2d 1044
(N.D.Ill. 2013) (local regulation of property
maintenance preempted by FHFA action under
HERA); and Commonwealth of Mass. v. FHFA, 54
F.Supp.3d 94 (D.Mass. 2014) (even if
conservatorship not in place, court ruled that
federal law preempts state law that are in
‘‘irreconcilable conflict’’ with federal statute and
that applied to state housing statute at issue in
case).
13 12 U.S.C. 4513b provides FHFA should
establish for its regulated entities, by regulation or
guidelines, standards related inter alia to
management of market risk and credit risk,
management of asset growth and such other
operational and management standards as the
Director determines to be appropriate.
VerDate Sep<11>2014
17:49 Jan 15, 2020
Jkt 250001
5. How might the Enterprises best
gather or receive information on their
existing guaranteed or owned mortgage
loan portfolios to understand which
loans have PACE liens and in what
amount? Should mortgage loan servicers
be required to gather and report such
information to the Enterprises on a
periodic basis? What would the costs
and implications be of such a
requirement?
6. Would it be most effective for states
that authorize PACE programs to require
a registry of PACE lending so that
information currently only held by
PACE vendors or local tax rolls could be
available and maintained on an ongoing
basis? 14 What data should be included
in such a registry? What access would
be permitted while protecting consumer
privacy? Should a federal agency
provide for such a registry? What
minimum information would be
available to allow credit reporting
agencies to include PACE obligations in
credit reports obtained in connection
with mortgage origination or servicing?
7. Should servicers of mortgage loans
for the Enterprises provide an annual or
more frequent notice to existing
borrowers in PACE-eligible
communities informing them that,
under the terms of their mortgage, PACE
liens are not permitted? Should
borrowers be informed of the difficulties
that may arise in selling or refinancing
their home when a PACE lien has been
placed on their property? What other
information, if any, should be provided
by servicers to borrowers with regard to
PACE liens? Should borrowers in PACE
jurisdictions be required to execute any
additional agreements or certifications
in connection with mortgages for the
Enterprises, Home Loan Banks or FHA
guaranteeing the borrowers will not
accept PACE financing for energy
efficiency improvements?
8. The Consumer Financial Protection
Bureau published and received
comment on an Advanced Notice of
Proposed Rulemaking on disclosures
under the Truth in Lending Act, as
required by section 307 of the Economic
Growth, Regulatory Relief and
Consumer Protection Act, Public Law
115–174 (2018). The ANPR addresses,
in line with the statute, TILA sections
relating to ability to repay requirements
14 California enacted in AB 2063, Section 13
(2018) discretionary authority for the California
Division of Business Organizations to require
establishment of a ‘‘real-time registry or data base
system for tracking PACE assessments . . . [which
may include] features for providing or obtaining
information about a property’s status with regard to
PACE assessments placed on [a] property, whether
recorded or not.’’
PO 00000
Frm 00047
Fmt 4703
Sfmt 4703
2739
and to application of civil money
penalty provisions for TILA violations.
FHFA seeks input on matters beyond
the scope of the statutory and regulatory
provisions addressed by the CFPB. For
example, do consumers face issues
regarding the tax treatment of PACE
loan payments and reporting to
consumers of deductible versus nondeductible expenses? Are there
consumer impacts from PACE liens on
title searches? What impacts might arise
where local governments use structures
such as an unelected Joint Powers
Authority that limit government
responsibility for PACE program
administration? What options exist for a
homeowner who can no longer afford to
repay a PACE lien, such as a tax deferral
by the taxing authority? What issues
arise from the use of approved
contractor lists and the impact on costs,
contractor regulation, and recourse for
consumers for defective equipment?
What issues may arise from notification
practices regarding PACE liens at time
of property sales and other issues that
align with or expand on consumer
related concerns raised by the CFPB?
9. What information regarding
experiences under programs of the
Department of Housing and Urban
Development relating to PACE may be
relevant for consideration by FHFA in
its evaluation of public input? Where
PACE programs create super-priority
liens, should loan products issued or
guaranteed by the government, such as
Federal Housing Administration
mortgage insurance, consider
adjustments such as risk based mortgage
insurance premiums or limits on partial
or assignment claims or the availability
or terms of modifications allowable?
Should government programs, such as
those of FHA, contemplate further
limiting the availability of mortgage
insurance in PACE jurisdictions for
forwards, HECMS or both? Are there
improvements that government
programs could undertake, such as FHA
increasing utilization of its ‘‘green’’
insured mortgages or its Section 203(k)
rehabilitation mortgage insurance
program to avoid the risks associated
with PACE programs?
E. Responses
FHFA invites responses on all aspects
of this Request for input. Respondents
should identify by number the question
each of their comments addresses.
Copies of all responses will be posted
without change, including any personal
information you provide, such as your
name and address, email address, and
telephone number, on the FHFA website
at https://www.fhfa.gov. Copies of all
responses received will be available for
E:\FR\FM\16JAN1.SGM
16JAN1
2740
Federal Register / Vol. 85, No. 11 / Thursday, January 16, 2020 / Notices
examination by the public through the
electronic docket for this Notice also
located on the FHFA website.
In responding to these questions,
respondents should provide their
viewpoints as to the implications of
such actions, the cost to business or to
the public of such actions, benefits or
risks in such actions, and specific terms
or specific provisions that would be
appropriate in undertaking such actions.
FHFA also welcomes additional input
on any issues raised in considering
these questions or going beyond the
questions asked. Responders need not
reply to all questions set forth here. At
the same time, respondents may suggest
other actions that FHFA should
consider and provide an explanation of
the rationale and benefits of such action.
Dated: January 10, 2020.
Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020–00655 Filed 1–15–20; 8:45 am]
BILLING CODE 8070–01–P
FEDERAL RESERVE SYSTEM
Proposed Agency Information
Collection Activities; Comment
Request
Board of Governors of the
Federal Reserve System.
ACTION: Notice, request for comment.
AGENCY:
The Board of Governors of the
Federal Reserve System (Board) invites
comment on a proposal to extend for
three years, with revision, the Census of
Finance Companies and Survey of
Finance Companies (FR 3033p and FR
3033s; OMB No. 7100–0277).
DATES: Comments must be submitted on
or before March 16, 2020.
ADDRESSES: You may submit comments,
identified by FR 3033p or FR 3033s, by
any of the following methods:
• Agency Website: https://
www.federalreserve.gov/. Follow the
instructions for submitting comments at
https://www.federalreserve.gov/apps/
foia/proposedregs.aspx.
• Email: regs.comments@
federalreserve.gov. Include the OMB
number in the subject line of the
message.
• FAX: (202) 452–3819 or (202) 452–
3102.
• Mail: Ann E. Misback, Secretary,
Board of Governors of the Federal
Reserve System, 20th Street and
Constitution Avenue NW, Washington,
DC 20551.
All public comments are available
from the Board’s website at https://
www.federalreserve.gov/apps/foia/
khammond on DSKJM1Z7X2PROD with NOTICES
SUMMARY:
VerDate Sep<11>2014
17:49 Jan 15, 2020
Jkt 250001
proposedregs.aspx as submitted, unless
modified for technical reasons or to
remove personally identifiable
information at the commenter’s request.
Accordingly, comments will not be
edited to remove any identifying or
contact information. Public comments
may also be viewed electronically or in
paper in Room 146, 1709 New York
Avenue NW, Washington, DC 20006,
between 9:00 a.m. and 5:00 p.m. on
weekdays. For security reasons, the
Board requires that visitors make an
appointment to inspect comments. You
may do so by calling (202) 452–3684.
Upon arrival, visitors will be required to
present valid government-issued photo
identification and to submit to security
screening in order to inspect and
photocopy comments.
Additionally, commenters may send a
copy of their comments to the Office of
Management and Budget (OMB) Desk
Officer—Shagufta Ahmed—Office of
Information and Regulatory Affairs,
Office of Management and Budget, New
Executive Office Building, Room 10235,
725 17th Street NW, Washington, DC
20503, or by fax to (202) 395–6974.
FOR FURTHER INFORMATION CONTACT: A
copy of the Paperwork Reduction Act
(PRA) OMB submission, including the
reporting form and instructions,
supporting statement, and other
documentation will be placed into
OMB’s public docket files, if approved.
These documents will also be made
available on the Board’s public website
at https://www.federalreserve.gov/apps/
reportforms/review.aspx or may be
requested from the agency clearance
officer, whose name appears below.
Federal Reserve Board Clearance
Officer—Nuha Elmaghrabi—Office of
the Chief Data Officer, Board of
Governors of the Federal Reserve
System, Washington, DC 20551, (202)
452–3829.
SUPPLEMENTARY INFORMATION: On June
15, 1984, OMB delegated to the Board
authority under the PRA to approve and
assign OMB control numbers to
collections of information conducted or
sponsored by the Board. In exercising
this delegated authority, the Board is
directed to take every reasonable step to
solicit comment. In determining
whether to approve a collection of
information, the Board will consider all
comments received from the public and
other agencies.
Request for Comment on Information
Collection Proposal
The Board invites public comment on
the following information collection,
which is being reviewed under
authority delegated by the OMB under
PO 00000
Frm 00048
Fmt 4703
Sfmt 4703
the PRA. Comments are invited on the
following:
a. Whether the proposed collection of
information is necessary for the proper
performance of the Board’s functions,
including whether the information has
practical utility;
b. The accuracy of the Board’s
estimate of the burden of the proposed
information collection, including the
validity of the methodology and
assumptions used;
c. Ways to enhance the quality,
utility, and clarity of the information to
be collected;
d. Ways to minimize the burden of
information collection on respondents,
including through the use of automated
collection techniques or other forms of
information technology; and
e. Estimates of capital or startup costs
and costs of operation, maintenance,
and purchase of services to provide
information.
At the end of the comment period, the
comments and recommendations
received will be analyzed to determine
the extent to which the Board should
modify the proposal.
Proposal Under OMB Delegated
Authority To Extend for Three Years,
With Revision, the Following
Information Collections
Report title: Census of Finance
Companies.
Agency form number: FR 3033p.
OMB control number: 100–0277.
Frequency: Quinquennially.
Respondents: Finance companies.
Estimated number of respondents:
12,800.
Estimated average hours per response:
0.33.
Estimated annual burden hours:
4,224.
General description of report: The FR
3033p is a census survey designed to
identify the universe of finance
companies eligible for potential
inclusion in the FR 3033s and to enable
the stratification of the sample for more
statistically efficient estimation. The FR
3033p currently comprises 11 questions
to assess the company’s asset size, level
of loan and lease activity, company
structure, and licensing authority.
Report title: Survey of Finance
Companies.
Agency form number: FR 3033s.
OMB control number: 7100–0277.
Frequency: Quinquennially.
Respondents: Finance companies that
responded to the FR 3033p.
Estimated number of respondents:
1,200.
Estimated average hours per response:
1.5.
Estimated annual burden hours:
1,800.
E:\FR\FM\16JAN1.SGM
16JAN1
Agencies
[Federal Register Volume 85, Number 11 (Thursday, January 16, 2020)]
[Notices]
[Pages 2736-2740]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-00655]
=======================================================================
-----------------------------------------------------------------------
FEDERAL HOUSING FINANCE AGENCY
[No. 2020-N-1]
Property Assessed Clean Energy (PACE) Program
AGENCY: Federal Housing Finance Agency.
ACTION: Notice and Request for Input.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA), as regulator for
Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks,
seeks public input on residential energy retrofitting programs financed
through special state legislation enabling a ``super-priority lien''
over existing and subsequent first mortgages. In particular, FHFA seeks
input on potential changes to its policies for its regulated entities
based on safety and soundness concerns. These state programs, termed
Property Assessed Clean Energy or PACE, address residential properties
and commercial applications. FHFA's primary focus is on residential
PACE programs in this Request for Input (RFI).
DATES: Written input must be received by March 16, 2020.
ADDRESSES: You may submit your response on the Notice identified by
``PACE Request for Input, Notice No. 2020-N-1,'' by any one of the
following methods:
Agency Website: www.fhfa.gov/open-for-comment-or-input.
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting input. If you submit your
response to the Federal eRulemaking Portal, please also send it by
email to FHFA at [email protected] to ensure timely receipt by the
agency.
Mail/Hand Delivery: Federal Housing Finance Agency, Eighth
Floor, 400 Seventh Street SW, Washington, DC 20219, ATTENTION: ``PACE
Request for Input, Notice No. 2020-N-1.''
FHFA will post all public responses received without change,
including any personal information you provide, such as your name and
address, email address, and telephone number, on the FHFA website at
https://www.fhfa.gov. In addition, copies of all responses received will
be available for examination by the public through the electronic
docket for this Notice also located on the FHFA website.
FOR FURTHER INFORMATION CONTACT: Alfred M. Pollard, General Counsel,
[email protected], (202) 649-3050 (this is not a toll-free
number), Federal Housing Finance Agency, 400 Seventh Street SW,
Washington, DC 20219. The Telecommunications Device for the Deaf is
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
Request for Input
A. PACE Programs
The Federal Housing Finance Agency (FHFA), as regulator for Fannie
Mae and Freddie Mac (the Enterprises) as well as the Federal Home Loan
Banks, seeks public input on residential energy retrofitting programs
financed through special state legislation enabling a ``super-priority
lien'' over existing and subsequent first mortgages. In particular,
FHFA seeks input on potential changes to its policies for its regulated
entities based on safety and soundness concerns. These state programs,
termed Property Assessed Clean Energy or PACE, address residential
properties and commercial applications. FHFA's primary focus is on
residential PACE programs in this Request for Input (RFI).
These state initiatives authorize counties, municipalities and
other government entities to create a financing scheme with, in the
majority of cases, private parties administering the home energy
retrofit programs. The programs lend to consumers for defined products
and services and approved contractors. To attract private capital, the
loans impose a tax assessment on the property so that the loan is
repaid under a locality's taxing structure to the benefit of bond
holders or lenders. This assures priority status over any first lien
mortgage at any tax sale or foreclosure sale. PACE is not traditional
second mortgage or home equity lending.
[[Page 2737]]
Each PACE lending program was created to attract private investors
to provide funds for loans for energy retrofits. Unlike normal secured
home improvement financing, the PACE program seeks to secure a super-
priority first lien over all other lien holders on a property through a
governmental property tax lien. As the financing concept provides that
the lien, associated with the PACE loan, ``runs'' with the property,
this proves attractive to investors who provide PACE program funding.
With a super-priority lien position, the risk of investor loss becomes
very small as that lien has priority over pre-existing first mortgages
and has the possibility of continuing to run with the property to a
subsequent purchaser. This investor opportunity comes at the expense of
existing lien holders, who have not had the ability to consent or not
consent to the new lien and unexpectedly bear a new risk of loss that
did not exist at the time the mortgage was originated.
As a tax-related assessment, the PACE loan is fundamentally asset-
based lending that ``runs with the land.'' This means a purchaser of a
home with an existing PACE loan assumes the outstanding obligation and
any unpaid or delinquent amounts. Despite the benefit of highest
priority lien position, interest rates charged to borrowers for PACE
are typically substantially higher than for a first-lien mortgage.
Purchasers may not wish to acquire such obligations where the PACE
interest rate is higher than their purchase loan rate or the
improvements are out of date or in need of repair. State laws provide
for localities to collect administrative fees of up to 10 percent of
the loan amount usually added to the loan amount, and for lending
amounts tied not to borrower's ``ability to repay,'' but to the
property and its assessment up to 15 percent of the assessed value. The
holder of such a lien may move for foreclosure on the property or the
tax administrator may do so and recover the unpaid amount of the PACE
loan; other parties recover what remains.
Such loans are not recorded in local land records but in tax
records and may bear a denomination other than PACE such as an
abbreviated PACE program name. Such tax records usually list the amount
of the loan and the amount paid, but do not provide distinctions on
principal and interest. They are not part of ordinary mortgage record
searches.
Some PACE programs claim that PACE loans do not affect debt-to-
income (DTI) ratios, an important benchmark for consumers and lenders.
The Enterprises require lenders to include homeowner property tax
payments that would include PACE assessments as a component of the loan
applicant's present or future housing expense to calculate DTI for loan
eligibility. Unavailable data on DTI may permit a homeowner to incur
more debt with lenders unaware of the PACE obligation due to a lack of
DTI information or potentially inaccurate credit scores. Because PACE
loans are not recorded in land records but in tax rolls, often with
varying names or descriptions, they are difficult to identify in title
searches.
Finally, PACE programs lack uniformity and may differ in every
community within a state, making it challenging for lenders to evaluate
the implications for individual homeowners or home purchasers.
B. FHFA, Financial Regulators and Super-Priority Liens
In 2010, FHFA, the Office of the Comptroller of the Currency (OCC),
the National Credit Union Administration and the Federal Deposit
Insurance Corporation highlighted the risks attendant to PACE
lending.\1\ Fundamentally, the priming of a first mortgage was and
remains the central issue. FHFA directed Fannie Mae and Freddie Mac not
to purchase or re-finance mortgages with PACE liens and reserved other
potential actions. The Federal Home Loan Banks were alerted to the need
for vigilance in accepting collateral for advances that may have PACE
liens attached. FHFA determinations regarding residential PACE loan
programs have been upheld in three Circuit Court decisions.\2\
---------------------------------------------------------------------------
\1\ For example, in OCC's Supervisory Guidance, OCC 2010-25
(July 6, 2010) at https://www.occ.gov/news-issuances/bulletins/2010/bulletin-2010-25.html, the OCC emphasized that beside loans, banks
investing in mortgage backed securities should take into account
PACE programs in their asset valuations and to consider the impact
of PACE programs on their institutions and the markets when making
any decision on ``associated bond underwriting.'' Overall, OCC
indicated it considered programs that failed to ``observe existing
lien preference'' to pose ``significant regulatory and safety and
soundness concerns.''
\2\ See County of Sonoma v. FHFA, 710 F.3d 987 (9th Cir. 2013);
Leon County v. FHFA, 700 F.3d 1273 (11th Cir. 2012); and Town of
Babylon v. FHFA, 699 F.3d 221 (2nd Cir. 2012) (appeal of
consolidated cases, after granting of motions to dismiss in the
Southern and Eastern Districts of New York).
---------------------------------------------------------------------------
In 2014, FHFA re-stated its concerns regarding PACE and other
``lien-priming'' programs.\3\ In its public statement of December 22,
2014, FHFA summarized that--
---------------------------------------------------------------------------
\3\ https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-the-Federal-Housing-Finance-Agency-on-Certain-Super-Priority-Liens.aspx.
The existence of these super-priority liens increases the risk
of losses to taxpayers. Fannie Mae and Freddie Mac, while operating
in conservatorship, currently support the housing finance market by
purchasing, guaranteeing, and securitizing single-family mortgages.
One of the bedrock principles in this process is that the mortgages
supported by Fannie Mae and Freddie Mac must remain in first-lien
position, meaning that they have first priority in receiving the
proceeds from selling a house in foreclosure. As a result, any lien
from a loan added after origination should not be able to jump in
line ahead of a Fannie Mae or Freddie Mac mortgage to collect the
---------------------------------------------------------------------------
proceeds of the sale of a foreclosed property.
Enterprise programs support the ability of a borrower to purchase a
home and the Enterprise mortgage is recorded in first-lien position. A
PACE loan is only available to someone who owns a home. In the vast
majority of cases, home ownership is obtained by a mortgage loan in
which a lender has placed a substantial amount of capital at risk. For
the Enterprises, this means up to $510,400 or, in high cost areas, up
to $765,600 to provide homeownership opportunities. Accordingly, the
Enterprises require that the mortgage loans they purchase remain in a
first-lien position for the life of the loan.\4\ Also, the
congressional charters for the Enterprises require borrowers to have at
least 20 percent equity in a home or an approved form of credit
enhancement, such as mortgage insurance, to address the risk of
nonpayment. A municipality providing ``super-priority'' lien status for
a PACE loan can erode--partially or completely--that 20 percent equity
cushion, as required by statute, and place either the homeowner or a
regulated entity, or both, at substantial risk.
---------------------------------------------------------------------------
\4\ Enterprise loans are packaged into mortgage backed
securities and purchased by investors which supports housing
finance; investors rely on the underlying loan pool in making their
purchases.
---------------------------------------------------------------------------
PACE programs present a threat to the quality and stability of
large amounts of Enterprise loans. According to Fannie Mae and Freddie
Mac, in mid-2019 in California and Florida, the two most active
residential PACE jurisdictions, the Enterprises had over 5.4 million
loans with unpaid principal balances of approximately $1.18 trillion.
These bear a risk of impairment by super-priority PACE loans that the
Enterprises clearly stated in their loan instruments must be avoided.
Further, these loans, that ``run with the land,'' impair the
foreclosure process when that is an unavoidable outcome to the benefit
of PACE investors.
Consumer issues have surrounded the PACE programs from their
inception. These include the cost of funding, contractor sales
techniques (notably, responding to a limited homeowner
[[Page 2738]]
problem and marketing a full house retrofit), rolling the
administrative fees for the county into the PACE loan amount, product
sales at above market interest rates, workmanship issues, inadequate
disclosures and indiscriminate lending regardless of ability to
repay.\5\ Consumer protections at the state level for PACE lending are
uneven and in some instances non-existent. Multiple reports exist of
pressure on homeowners with PACE liens to pay off the PACE loans in
order to sell their homes, either to permit the purchaser to secure
financing or because the purchaser does not want to be saddled with a
loan with an interest rate that can be double the rate of a new
mortgage.\6\ Borrower demands for pay offs have occurred independent of
positions taken by FHFA.
---------------------------------------------------------------------------
\5\ California enacted into law AB 1284 (California Financing
Law) in 2017. The California Department of Business Oversight
offered two opportunities for public input in November 30, 2017 and
April 19, 2018 regarding its rulemaking under the law for licensure,
program administration, consumer related provisions and cost benefit
analysis of its rules. See https://www.dbo.ca.gov/Licensees/PACE/.
Materials presented to the legislature and to the California
Department of Business Operations provide significant information of
consumer problems relating to PACE, including descriptions of
individual consumer issues with PACE administrators and their
contractors and with the impact on selling their homes. As well,
information on the effectiveness of individual products and how
quickly homeowners receive benefits in excess of the loan payments
(on higher cost loans) have been questioned and led to federal
legislation on disclosure requirements. Additionally, real estate
professionals have commented on the problems of selling homes with
PACE liens.
\6\ Id. Consumer advocacy groups have highlighted, along with
repeated newspaper reports, that this dilemma exists for homeowners
with PACE liens. Consumer complaints involving PACE loans on a range
of complaints have been detailed; see, for example, National
Consumer Law Center, Residential Property Assessed Clean Energy
Loans: The Perils of Easy Money for Clean Energy Improvements
(September 2017), pp. 5-17.
---------------------------------------------------------------------------
Recognizing consumer issues, Congress in 2018 enacted amendments to
the Truth in Lending Act to require federal regulation when PACE loans
are made to assure more effective consumer protections, focused on
ability to repay requirements. The law did not mandate that such
properties impacted by such loans serve as collateral for mortgage
loans made, purchased or authorized by any primary or secondary market
participant. The Consumer Financial Protection Bureau was entrusted
with implementing this law by regulation.\7\
---------------------------------------------------------------------------
\7\ Public Law 115-174 (2018), section 307; codified at 15
U.S.C. 1639c(b)(3)(C). Also, Bureau of Consumer Financial
Protection, Advance Notice of Proposed Rulemaking on Residential
Property Assessed Clean Energy Financing, 84 FR 8479 (March 8,
2019).
---------------------------------------------------------------------------
C. Financing Energy Retrofitting
FHFA and other federal regulators support financing for residential
energy retrofitting, where appropriate, and, in many instances, that an
actual consumer benefit exists as documented by an energy saving
report. Such lending, by regulated financial institutions, is
undertaken with strict attention to ability to repay rules, safety and
soundness prescriptions and other elements of the robust range of
federal and state consumer protection provisions. Properly underwritten
loans provide sustainable interest rates, consider the financial
position of a homeowner and provide mortgage makers and mortgage
investors a reliable product for purchase. At the same time PACE
financing encumbers the foreclosure process with an obligation that
``runs with the land'' where normal foreclosure ends claims against the
property.
The Department of Housing and Urban Development (HUD) has taken
initial steps to address some of the same concerns described above. On
December 7, 2017, HUD issued a Mortgagee Letter announcing that the
Federal Housing Administration (FHA) will no longer insure new
mortgages on properties that include PACE assessments, citing concerns
about the potential for increased losses to the Mutual Mortgage
Insurance Fund (MMI Fund) due to the priority lien status given to such
assessments.\8\
---------------------------------------------------------------------------
\8\ U.S. Dep't of Hous. and Urban Dev., Mortgagee Letter 2017-18
(Dec. 7, 2017).
---------------------------------------------------------------------------
Despite restricting FHA insurance for properties already encumbered
by PACE assessments, nothing prevents a FHA-insured borrower from
acquiring a PACE loan in the future. HUD considers PACE assessments as
potentially dangerous to the MMI Fund and, further, placing these
assessments on FHA-insured properties post-endorsement creates a lack
of transparency making it difficult for the agency to understand the
true nature of the risks involved.\9\ HUD has indicated that it is
unknown how many existing FHA borrowers have taken out PACE loans and
has expressed concern that FHA is not in a first lien position.\10\
Allowing PACE assessments to essentially subordinate the FHA-insured
mortgage creates a default under the mortgage and is particularly
problematic for HUD and FHA as the MMI Fund is exposed to unmeasurable
risk.
---------------------------------------------------------------------------
\9\ Press Release, U.S. Dep't of Hous. and Urban Dev., FHA to
Halt Insuring Mortgages on Homes with PACE Assessments (Dec. 7,
2017) https://archives.hud.gov/news/2017/pr17-111.cfm.
\10\ An Examination of the Federal Housing Administration and
Its Impact on Homeownership in America: Hearing Before the Subcomm.
on Hous., Cmty Dev., and Ins. Of the H. Comm. on Fin. Serv., 116th
Cong. (Dec. 5, 2019).
---------------------------------------------------------------------------
D. Actions by the Federal Housing Finance Agency
The continuation of PACE programs and their adverse impact merits
review for potential modification by FHFA of its safety and soundness
and prudential standard directions to its regulated entities.
In its 2010 statement on PACE programs and in its directions to
Fannie Mae and Freddie Mac, FHFA indicated that the Enterprises could
undertake certain actions, including but not limited to, adjusting
loan-to-value ratios to reflect the maximum permissible PACE loan
amounts available to borrowers in jurisdictions with PACE program,
requiring in loan agreements that a PACE loan may only be made in
relation to an Enterprise purchased mortgage with the consent of the
Enterprise, tightening debt-to-income ratios to account for additional
borrower obligations associated with PACE loans and such other actions
as would be appropriate. The Federal Home Loan Banks were advised to
consider their acceptance of collateral that might be affected by PACE
loans as a prudent safety and soundness practice.
The most direct action taken was by the Enterprises issuing
bulletins and updates to their seller-servicer guides to indicate the
Enterprises would not make or refinance a mortgage loan for a property
encumbered by a PACE lien.\11\ This Request for Input asks for public
comment on enhancing the actions to be taken regarding PACE liens in
light of their continued threat to first lien mortgages and to
homeowners and home purchasers from the lien priming effects of PACE
loans.\12\ Such actions
[[Page 2739]]
are founded on FHFA's regulatory authorities relating to safety and
soundness and the prudential authorities enunciated in the Housing and
Economic Recovery Act of 2008.\13\
---------------------------------------------------------------------------
\11\ Fannie Mae Selling Guide (May 1, 2019), Lender Letter
(September 18, 2009), and announcements (February 27, 2018; December
1, 2010; August 31, 2010): https://www.fanniemae.com/content/guide/selling/b5/3.4/01.html, https://www.fanniemae.com/content/announcement/ll0709.pdf, https://www.fanniemae.com/content/announcement/sel1802.pdf, https://www.fanniemae.com/content/announcement/sel1016.pdf, https://www.fanniemae.com/content/announcement/sel1012.pdf.
Freddie Mac Single-Family Seller/Servicer Guide (May 1, 2019),
Freddie Mac Single-Family Refinancing and Energy Retrofit Programs
page, Selling Guide Bulletin (August 24, 2016), Lender Letter
(August 20, 2014): https://guide.freddiemac.com/app/guide/section/4301.4, https://sf.freddiemac.com/general/refinancing-and-energy-retrofit-programs, https://guide.freddiemac.com/app/guide/bulletin/2016-16.
\12\ In certain related cases, focused mainly but not
exclusively on conservatorship authorities, courts have made clear
that both Enterprise guides and actions by FHFA regarding PACE are
appropriate and preemptive of state authorities, including state
taxing authorities. See e.g., Berezovsky v. Moniz, 869 F.3d 923 (9th
Cir. 201) (HOA priority liens); FHFA v. City of Chicago, 962
F.Supp.2d 1044 (N.D.Ill. 2013) (local regulation of property
maintenance preempted by FHFA action under HERA); and Commonwealth
of Mass. v. FHFA, 54 F.Supp.3d 94 (D.Mass. 2014) (even if
conservatorship not in place, court ruled that federal law preempts
state law that are in ``irreconcilable conflict'' with federal
statute and that applied to state housing statute at issue in case).
\13\ 12 U.S.C. 4513b provides FHFA should establish for its
regulated entities, by regulation or guidelines, standards related
inter alia to management of market risk and credit risk, management
of asset growth and such other operational and management standards
as the Director determines to be appropriate.
---------------------------------------------------------------------------
FHFA, therefore, asks for public input on the following questions:
1. Should FHFA direct the Enterprises to decrease loan-to-value
ratios for all new loan purchases in states or in communities where
PACE loans are available? By how much should available loan-to-value
ratios be reduced to address the increased risk of such liens being
placed on the property and what related implications would result from
such actions? Should loan-to-value (LTV) ratios be reduced for all loan
purchases sufficient to take into account the maximum amount of a PACE
financing available in that community? Should potential future
increases in permitted percentage of available PACE financing-to-
assessed value be considered?
2. Should FHFA direct the Enterprises to increase their Loan Level
Price Adjustments (LLPAs) or require other credit enhancements for
mortgage loans or re-financings in communities with available PACE
financing? What increased levels would be appropriate for such LLPAs in
light of the risks of PACE financing posed to the Enterprises?
3. Should FHFA consider other actions regarding Enterprise purchase
or servicing requirements in jurisdictions with PACE programs?
4. Should FHFA establish safety and soundness standards for the
Federal Home Loan Banks to accept as eligible advance collateral
mortgage loans in communities where PACE loans are available? How might
those standards best address the increased risk of such collateral?
Should such standards be in line with actions that FHFA would undertake
for the Enterprises, recognizing the difference in business structures
between the Enterprises and the Banks?
5. How might the Enterprises best gather or receive information on
their existing guaranteed or owned mortgage loan portfolios to
understand which loans have PACE liens and in what amount? Should
mortgage loan servicers be required to gather and report such
information to the Enterprises on a periodic basis? What would the
costs and implications be of such a requirement?
6. Would it be most effective for states that authorize PACE
programs to require a registry of PACE lending so that information
currently only held by PACE vendors or local tax rolls could be
available and maintained on an ongoing basis? \14\ What data should be
included in such a registry? What access would be permitted while
protecting consumer privacy? Should a federal agency provide for such a
registry? What minimum information would be available to allow credit
reporting agencies to include PACE obligations in credit reports
obtained in connection with mortgage origination or servicing?
---------------------------------------------------------------------------
\14\ California enacted in AB 2063, Section 13 (2018)
discretionary authority for the California Division of Business
Organizations to require establishment of a ``real-time registry or
data base system for tracking PACE assessments . . . [which may
include] features for providing or obtaining information about a
property's status with regard to PACE assessments placed on [a]
property, whether recorded or not.''
---------------------------------------------------------------------------
7. Should servicers of mortgage loans for the Enterprises provide
an annual or more frequent notice to existing borrowers in PACE-
eligible communities informing them that, under the terms of their
mortgage, PACE liens are not permitted? Should borrowers be informed of
the difficulties that may arise in selling or refinancing their home
when a PACE lien has been placed on their property? What other
information, if any, should be provided by servicers to borrowers with
regard to PACE liens? Should borrowers in PACE jurisdictions be
required to execute any additional agreements or certifications in
connection with mortgages for the Enterprises, Home Loan Banks or FHA
guaranteeing the borrowers will not accept PACE financing for energy
efficiency improvements?
8. The Consumer Financial Protection Bureau published and received
comment on an Advanced Notice of Proposed Rulemaking on disclosures
under the Truth in Lending Act, as required by section 307 of the
Economic Growth, Regulatory Relief and Consumer Protection Act, Public
Law 115-174 (2018). The ANPR addresses, in line with the statute, TILA
sections relating to ability to repay requirements and to application
of civil money penalty provisions for TILA violations.
FHFA seeks input on matters beyond the scope of the statutory and
regulatory provisions addressed by the CFPB. For example, do consumers
face issues regarding the tax treatment of PACE loan payments and
reporting to consumers of deductible versus non-deductible expenses?
Are there consumer impacts from PACE liens on title searches? What
impacts might arise where local governments use structures such as an
unelected Joint Powers Authority that limit government responsibility
for PACE program administration? What options exist for a homeowner who
can no longer afford to repay a PACE lien, such as a tax deferral by
the taxing authority? What issues arise from the use of approved
contractor lists and the impact on costs, contractor regulation, and
recourse for consumers for defective equipment? What issues may arise
from notification practices regarding PACE liens at time of property
sales and other issues that align with or expand on consumer related
concerns raised by the CFPB?
9. What information regarding experiences under programs of the
Department of Housing and Urban Development relating to PACE may be
relevant for consideration by FHFA in its evaluation of public input?
Where PACE programs create super-priority liens, should loan products
issued or guaranteed by the government, such as Federal Housing
Administration mortgage insurance, consider adjustments such as risk
based mortgage insurance premiums or limits on partial or assignment
claims or the availability or terms of modifications allowable? Should
government programs, such as those of FHA, contemplate further limiting
the availability of mortgage insurance in PACE jurisdictions for
forwards, HECMS or both? Are there improvements that government
programs could undertake, such as FHA increasing utilization of its
``green'' insured mortgages or its Section 203(k) rehabilitation
mortgage insurance program to avoid the risks associated with PACE
programs?
E. Responses
FHFA invites responses on all aspects of this Request for input.
Respondents should identify by number the question each of their
comments addresses. Copies of all responses will be posted without
change, including any personal information you provide, such as your
name and address, email address, and telephone number, on the FHFA
website at https://www.fhfa.gov. Copies of all responses received will
be available for
[[Page 2740]]
examination by the public through the electronic docket for this Notice
also located on the FHFA website.
In responding to these questions, respondents should provide their
viewpoints as to the implications of such actions, the cost to business
or to the public of such actions, benefits or risks in such actions,
and specific terms or specific provisions that would be appropriate in
undertaking such actions. FHFA also welcomes additional input on any
issues raised in considering these questions or going beyond the
questions asked. Responders need not reply to all questions set forth
here. At the same time, respondents may suggest other actions that FHFA
should consider and provide an explanation of the rationale and
benefits of such action.
Dated: January 10, 2020.
Mark A. Calabria,
Director, Federal Housing Finance Agency.
[FR Doc. 2020-00655 Filed 1-15-20; 8:45 am]
BILLING CODE 8070-01-P