For most of 2017, the Trump Administration was quiet with regard to the Federal Housing Administration (“FHA”) loan program. However, the Department of Housing and Urban Development (“HUD”) recently offered some relief to lenders and servicers of FHA-insured loans. Through Mortgagee Letter 2017-18, HUD ended its policy of allowing FHA insurance for mortgage loans secured by properties encumbered with Property Assessed Clean Energy (“PACE”) obligations. FHA’s new policy prohibiting PACE obligations in connection with FHA-insured loans, which becomes effective for loans with FHA case numbers issued on or after January 7, 2018, reverses Mortgagee Letter 2016-11, a short-lived Obama era policy that permitted lenders to originate FHA-insured loans involving PACE obligations.

PACE loans provide homeowners an alternative to traditional financing for energy efficient home improvements such as solar panels, insulation, water conservation projects, and HVAC systems. Instead of funding the home improvements through loans, the borrower pays through special property tax assessments. PACE financing does not follow the standard review of a borrower’s income, debt, and FICO score, but rather is based on the borrower’s equity in the home and the mortgage or property tax payment history. Many states and municipalities passed legislation implementing a PACE program and establishing their own terms and conditions for PACE loans. Homeowners voluntarily sign up for PACE financing through private companies, which often offer PACE through a network of approved dealers and installers. The PACE loan is secured by a property tax lien, often with terms of up to twenty years, which takes priority over both existing and future mortgages on the property.  Continue Reading FHA Changes Course on PACE Obligations

Who is responsible for the safety of drinking water?

The U.S. Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) has suggested – for the second time – that lenders making Federal Housing Administration (FHA) insured loans should be held to a higher level of accountability in ensuring that FHA borrowers have a safe and potable water supply. In a report dated September 29, 2017, the OIG’s stated concerns are two-fold: first, HUD may be endorsing loans for properties with water contaminants that affect their occupants’ health; and second, property values may decrease due to water quality issues, thereby posing an increased risk of loss to both HUD and homeowners. The OIG’s solution is for HUD to improve its guidance on safe water requirements as well as to sanction lenders that fail to identify water safety issues for properties known to be affected by water contaminants. Continue Reading Nationwide Safe Water Requirements for FHA-Insured Loans

On January 11, 2017, the U.S. Department of Housing and Urban Development (HUD) published Mortgagee Letter (ML) 2017-03, “Federal Housing Administration (FHA) Loan Review System – Implementation and Process Changes.”  The ML indicates that HUD is developing a new Loan Review System (LRS) that will provide an electronic platform for FHA loan-level file reviews and other functions for single family insured mortgages. The new requirements will apply to all FHA Title II Single Family programs, including reverse mortgages. Continue Reading HUD/FHA to Launch New Automated Loan Review System, Incorporating Defect Taxonomy