June 18, 2012 – A Federal Housing Finance Agency proposed rule
on home-secured loans involving certain state and local retrofit financing arrangements is out for comment until July 30.
FHFA has barred Fannie Mae and Freddie Mac from purchasing such loans when they involve security interests above those of the purchasing entity. The proposed rule is in response to a court order.
The subject financing arrangements are conducted under Property Assessed Clean Energy programs. PACE programs involve local governments providing property-secured financing to property owners for the purchase of energy-related home improvement projects. Repayment of the amount borrowed is often secured by the property and added to the property tax bill. This security interest creates a lien on the property that subordinates Fannie Mae and Freddie Mac security interests in the property.The FHFA warned Fannie and Freddie
about these arrangements in 2010. It explicitly barred them from purchasing PACE loans in February 2011 and was sued for doing so. Several courts dismissed the challenges, but a federal district court in California ordered the FHFA to proceed with a notice and comment period. An advance notice of proposed rulemaking was issued earlier this year.
The district court did not order the FHFA to reverse its current prohibition on the purchase of PACE loans by Fannie and Freddie, and FHFA is appealing the district court ruling, which also requires publication of a final rule. A circuit court has stayed that requirement pending the outcome of FHFA’s appeal.