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Guide Bulletin 2010-20 Provides Requirements for PACE Obligations That Provide for First-Lien Priority

August 31, 2010

On July 6, 2010, the Federal Housing Finance Agency (FHFA) issued a statement detailing concerns about the risk management challenges that certain Property Assessed Clean Energy (PACE) and PACE-like obligations, which provide for first-lien priority over existing mortgages, pose for mortgage lenders, servicers, and purchasers. FHFA further advised that safety and soundness concerns must be considered and addressed for these loans that change customary lending priorities.

In today's Single-Family Seller/Servicer Guide (Guide) Bulletin 2010-20 we are reinforcing our long-standing requirement that mortgages sold to us must be and remain in the first-lien position, while also providing guidance on our requirements for certain PACE obligations that provide for first-lien priority and were originated before July 6, 2010.

Mortgages secured by properties that have PACE obligations that do not provide for a first-lien priority are not affected by the requirements announced in Guide Bulletin 2010-20. We support responsible financing options for energy-efficient home improvements and continue to purchase mortgages secured by properties with subordinate energy-efficient obligations, provided these mortgages meet our requirements.

Sell & Deliver

For all mortgages with Freddie Mac settlement dates before July 6, 2010, that are secured by properties subject to PACE obligations that provide for first-lien priority and were originated before July 6, 2010, we are:

• Waiving our Uniform Security Instrument provision that would require that PACE obligations that provide for first-lien priority be subordinate to the first-lien mortgage.

Originate & Underwrite

When refinancing eligible mortgages with PACE obligations that provide for first-lien priority, we are:

• Requiring borrowers who have sufficient equity to use the refinance proceeds from a cash-out or no cash-out refinance mortgage to pay off the existing PACE obligation in full. Borrowers who do not qualify for either of these options may then be considered for a Freddie Mac Relief Refinance Mortgage^SM - Open Access that leaves the PACE obligation in place.

It is important that you carefully review Guide Bulletin 2010-20 for detailed information on today’s announcement, including additional details on our delivery requirements for refinancing eligible mortgages with PACE obligations that provide for first-lien priority. 

Get Additional Information

For additional details on today’s announcement, please carefully review the following information:

• Guide Bulletin 2010-20
• May 5 Industry Letter
• July 6 FHFA Statement