Property-Assessed Clean Energy (PACE) loans have been considered senior to the claim on the first mortgage. FHFA and FHA have had reservations about insuring or guaranteeing mortgages on homes with a PACE loan, which has limited PACE product use. On July 19, 2016, FHA and VA clarified how and when it would finance a home with a PACE loan: the lien must be subordinated but could travel with the property. This note explains why the new clarification protects FHA and VA and applauds HUD for embracing the PACE product in a way that protects HUD and encourages homeowners to employ energy-efficient enhancements to their home.
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