On Thursday the U.S. Department of Housing and Urban Development reversed its position on Property-Assessed Clean-Energy loans such that properties encumbered with clean-energy obligations will soon not be eligible for mortgages insured by the Federal Housing Administration.

In the North Bay, the policy change may affect such companies as Petaluma-based Ygrene Energy Fund, which sells PACE financing for such projects as solar panels.

"We are disappointed with FHA's decision," said Mike Lemyre, senior vice president of government affairs for Ygrene. "We remain encouraged by the hundreds of thousands of Americans who continue to recognize PACE as a valuable tool to protect their homes."

Lemyre noted that the recent FHA decision returns policy to what it was in 2010, policy that did not hinder the PACE market.

The policy is scheduled to take effect in 30 days, and will be formalized in an update of HUD’s Single-family-housing policy handbook. HUD encouraged feedback from those in the industry.

The guidance letter applies to origination of all FHA Title II forward mortgage programs and the Home Equity Conversion Mortgage program.

In 2016, the FHA established requirements regarding eligibility for FHA-insured mortgages on properties encumbered with PACE obligations that allowed, in some cases, continued obligation for repaying PACE obligations even when a property was foreclosed on and re-acquired by the FHA. Now the FHA is concerned about the potential for losses to the Mutual Mortgage Insurance Fund due to the priority lien status of such assessments in a default. The FHA is also concerned about lack of consumer protections regarding origination of PACE assessments.

The U.S. Department of Energy’s PACE model was designed to promote energy efficiency and renewable energy on private property, both commercial C-PACE and residential (R-PACE). The program allows local and state governments to fund up-front costs of energy improvements, paid off by the property owners over time.

PACE financing is based on land-secured financing districts, often with bonds issued by local governments. Property owners voluntarily choose to participate in PACE programs and pay them off gradually. A PACE assessment is a debt tied to the property, so the obligation may ride with the property even when it changes hands if the new owner agrees to it.

As of 2017, more than 30 states adopted commercial PACE-enabled legislation and some $400 million in projects have been financed with commercial PACE.

James Dunn covers technology, biotech, law, the food industry, and banking and finance. Reach him at: james.dunn@busjrnl.com or 707-521-4257