Capitol Report: FHA to stop backing green loans often called ‘predatory’

The Federal Housing Administration on Thursday said it would no longer insure mortgages on properties with certain loans criticized by consumer advocates for being predatory.

The loans, known as Property Assessed Clean Energy assessments, came with high interest rates, could be used for dubious uses, and were often marketed to homeowners who didn’t understand what they were getting into.

But most critically, the loans took priority over the mortgage on a home. That’s what Housing and Urban Development Sec. Ben Carson cited in explaining the FHA’s move.

“FHA can no longer tolerate putting taxpayers at risk by allowing obligations like these to be placed ahead of the mortgage itself in the event of a default,” Carson said in a statement.

Allowing a loan made later to have a priority lien “disrupts the very nature of secured lending,” said a coalition of groups including the National Association of Realtors, the American Bankers Association, and more.

The California Association of Realtors lobbied its state legislature to rein in PACE lending after an explosion of the loans started to make it difficult for homeowners to sell, refinance, or take out reverse mortgages.

And consumer groups criticized what they called the “predatory nature” of a complex financing product being peddled to unsophisticated homeowners, which was often seen as a means for creating fodder for securitization deals.

Congress began considering steps to roll back PACE lending after MarketWatch, and, later, the Wall Street Journal, reported on FHA’s policy decision, which was made in July 2016.

Read: These government-approved high-interest green loans are turning mortgage lending upside down

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