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NCUA warns CUs of environmental loan issues
ALEXANDRIA, Va. (7/16/10)--National Credit Union Administration Chairman Debbie Matz on Thursday encouraged credit union lenders to “understand the implications” of Property Assessed Clean Energy (PACE) loan programs which could potentially “usurp a lender’s senior lien position on a mortgage, undermine the underwriting decisions made by the lender at the time of mortgage origination, and bypass consumer protections required prior to the extension of credit.” Matz recommended that credit union executives make “appropriate adjustments” to their credit union’s underwriting criteria and collateral monitoring practices in the event that the PACE loans available in their service areas present potential safety and soundness concerns. Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco also released a statement on Thursday, saying that the FHFA would “defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac.” “Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections. Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage,” he added in a statement. The FHFA last week said that some energy retrofit lending programs, including those that are presented as PACE programs, represented “significant safety and soundness concerns.” As explained in The New York Times on July 1, the program works by having local governments issue bonds or borrow money that can then be used for home loans that cover the upfront costs of solar installations or other energy improvements. Homeowners who take part in these loans can then repay them over time through their property-tax bills. The PACE programs aim to ease the lending process for energy-saving property retrofitting projects, but can, according to the FHFA, "pose unusual and difficult risk management challenges for lenders, servicers and mortgage securities investors." The FHFA has previously directed Fannie, Freddie and the Federal Home Loan Banks to waive their uniform security instrument prohibitions against senior liens and adjust their loan-to-value ratios, loan covenants, and borrower debt-to-income ratios to adapt to the needs of PACE program loans, and the Obama administration has tagged $150 million in stimulus money for the program. The U.S. Department of Energy is also working to expand the PACE program. The Credit Union National Association (CUNA) is also concerned by these energy loans, which can ultimately result in higher property tax bills and increased payments for borrowers, as well as corresponding risks for credit unions involved in the lending process. For the full NCUA and FHFA releases, use the resource links.
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