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Agency Guidelines Regarding Solar Panels

Agency Topic

MORTGAGE CURRENTCYM C BECAUSE GETTING A MORTGAGE LOAN APPROVED AND CLOSED

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Limited Cash-Out Re�nance

(B2-1.2-02)

Cash-Out Re�nance(B2-1.2-03)

and Other Related Topics

Guideline

Secured or unsecured Property Assessed Clean Energy (PACE) or other debts may be paid off if they were used solely for energy-related improvements.

For certain transactions on properties that have a PACE loan, borrowers who re�nance the �rst mortgage loan and have suf�cient equity to pay off the PACE loan but choose not to do so will be ineligible for a

cash-out re�nance.

Property Assessed Clean Energy (PACE)

Loans (B5-3.4-01)

Fannie Mae will not purchase mortgage loans secured by properties with an outstanding PACE loan unless the terms of the PACE loan program do not provide for lien priority over �rst mortgage liens. Lenders must monitor state and local law to determine which jurisdictions offer PACE loans that may provide for lien priority.If the PACE loan is structured as a subordinate lien or unsecured loan, the �rst mortgage loan may be under-written to Fannie Mae’s standard guidelines.

However, for PACE loans originated prior to July 6, 2010, Fannie Mae waives the uniform security instrument prohibition against a PACE loan with lien priority if the corresponding mortgage loan was purchased before July 6, 2010 or is in an MBS pool with an issue date on or before July 1, 2010.

Fannie Mae

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MORTGAGE CURRENTCY

Agency Topic Guideline

Property Assessed Clean Energy (PACE)

Loans (B5-3.4-01)

Re�nancing Options for Properties with a PACE Loan

The following requirements apply to borrowers with loans that are owned or securitized by Fannie Mae who seek to re�nance and who obtained a PACE loan prior to July 6, 2010:

• Paying off the PACE loan: The lender must �rst attempt to qualify the borrower for either a cash-out or limited cash-out re�nance option, with the PACE loan being paid off as part of the re�nance. To mitigate the risk posed by PACE obligations that take lien priority over the mortgage, Fannie Mae requires that borrowers with suf�cient equity pay off the existing PACE obligation as a condition to obtaining a new mortgage loan. The prohibition against using the proceeds of a limited cash-out re�nance to pay off a loan not used to purchase the property will not apply. Loan case�les underwritten in DU as a limited cash-out re�nance may receive an Ineligi-ble recommendation when it appears the borrower is receiving more than 2%/$2,000 cash back due to the payoff of a PACE loan. The lender may deliver the loan with the Ineligible recommendation and retain the DU limited waiver of underwriting representations and warranties provided that the mortgage loan meets the require-ments of this Guide.

• Retaining the PACE loan: If the borrower is unable to qualify for a cash-out or limited cash-out re�nance with suf�cient proceeds to pay off the PACE loan, the lender may underwrite the loan as a limited cash-out re�nance, DU Re� Plus, or Re� Plus loan, as applicable, with the PACE loan remaining in place. In these cases, it will not be necessary to include the PACE loan in the calculation of the CLTV ratio, though it must be included in the monthly housing expense (PITIA) and debt-to-income calculation.

Properties with Solar Panels

(B2-3-04)

If the property owner is the owner of the solar panels, standard eligibility requirements apply (for example, appraisal, insurance, and title).

If the solar panels are leased from or owned by a third party under a power purchase agreement or other similar arrangement, the following requirements apply (whether to the original agreement or as subsequently amended):

• The solar panels may not be included in the appraised value of the property.• The property must maintain access to an alternate source of electric power that meets community standards.• The monthly lease payment must be included in the debt-to-income (DTI) ratio calculation unless the lease is structured to:

• provide delivery of a speci�c amount of energy at a �xed payment during a given period, and• have a production guarantee that compensates the borrower on a prorated basis in the event the solar panels fail to meet the energy output required for in the lease for that period.

• Payments under power purchase agreements where the payment is calculated solely based on the energy produced may be excluded from the DTI ratio.

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Fannie Mae



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MORTGAGE CURRENTCY


Properties with Solar Panels

(B2-3-04)

• The lease or power purchase agreement must indicate that • any damage that occurs as a result of installation, malfunction, manufacturing defect, or the removal of the solar panels is the responsibility of the owner of the equipment and the owner must be obligated to repair the damage and return the improvements to their original or prior condition (for example, sound and watertight conditions that are architecturally consistent with the home);• the owner of the solar panels agrees not to be named loss payee (or named insured) on the property owner’s property insurance policy covering the residential structure on which the panels are attached. As an alternative to this requirement, the lender may verify that the owner of the solar panels is not a named loss payee (or named insured) on the property owner’s property insurance policy; and• in the event of foreclosure, the lender or assignee has the discretion to

• terminate the lease/agreement and require the third-party owner to remove the equipment;• become, without payment of any transfer or similar fee, the bene�ciary of the borrower’s lease/agreement with the third party; or• enter into a new lease/agreement with the third party, under terms no less favorable than the prior owner.

• Any exceptions to coverage on the title insurance policy for recorded instruments relating to the solar panels must be considered minor and acceptable to Fannie Mae.


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A Property Assessed Clean Energy (PACE) or PACE-like obligation (either referred to as a "PACE obligation") refers to any energy retro�t loan that is:

• Used to �nance energy conservation improvements, and • Repaid through a property tax assessment

For the "no-cash out" re�nance of Mortgages secured by properties subject to PACE obligations that result in or provide for First Lien priority and where the PACE obligations are paid off with the Mortgage proceeds, the following requirements apply:

• The Mortgage being re�nanced must be owned in whole or in part or securitized by Freddie Mac• The PACE obligation must be paid in full• The Mortgage �le must include evidence that the obligation being paid off is a PACE obligation that results in or provides for First Lien priority• The Seller must deliver the Mortgage in accordance with the special delivery instructions for a Freddie Mac-owned "no cash-out" re�nance Mortgage in Section 6302.16(b)(ii)

Re�nances on Properties subject to an Energy Retro�t

Loan(4301.8)

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Freddie Mac

Fannie Mae


MORTGAGE CURRENTCY


Re�nances on Properties subject to an Energy Retro�t

Loan(4301.8)

For the cash-out re�nance of Mortgages secured by properties subject to PACE obligations and where the PACE obligations are paid off with the Mortgage proceeds, the following requirements apply:

• If the PACE obligation results in or provides First Lien priority, the PACE obligation must be paid in full with the Mortgage proceeds

For the re�nance of Mortgages with Freddie Mac Settlement Dates before July 6, 2010 secured by properties subject to PACE obligations originated before July 6, 2010 that result in or provide for First Lien priority, if the new re�nance Mortgage does not meet the requirements of a "no cash-out" re�nance Mortgage in Section 4301.4 or of a cash-out re�nance Mortgage in Section 4301.5, as modi�ed above, then the Mortgage may be originated as a Freddie Mac Relief Re�nance MortgageSM – Open Access meeting the requirements of Chapter 4303, with the PACE obligation remaining in place. The PACE obligation is not required to be included in the calculation of the total loan-to-value ratio; however, the PACE obligation must be included in the monthly debt payment-to-income ratio.

Monthly Debt Payment-to-Income

Ratio(5401.2, (b), (v)

Payments for solar panels subject to a lease agreement, PPA or similar type of agreement Lease payments for solar panels may be excluded from the monthly debt payment-to-income ratio if the lease:

• Provides for delivery of a speci�c amount of energy for an agreed upon payment during a given period; and• Includes a production guarantee under which the Borrower is compensated on a prorated basis when the energy produced by the solar panels is less than the level required in the lease agreement

Payments for solar panels subject to a PPA or similar type of agreement may be excluded from the monthly debt payment-to-income ratio if the payment is calculated based only on the generated energy.The Mortgage �le must contain a copy of the lease agreement, PPA or similar type of agreement, as applicable.

Freddie Mac



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MORTGAGE CURRENTCY


General Property Eligibility Requirements

[5601.2, (d)]

Properties with solar panels Freddie Mac purchases Mortgages secured by properties with solar panels if the Mortgages meet the following property eligibility requirements:

(i) Properties with solar panels owned by the Borrower If the Borrower owns the solar panels on the property, Sellers must ensure that the appraiser has recognized the existence of the solar panels, and considered the solar panels in the appraiser's opinion of the market value of the property. Additionally, the property must maintain access to electrical utilities consistent with community standards.

(ii) Properties with solar panels subject to a lease agreement, power purchase agreement (PPA) or similar type of agreement If the property has solar panels subject to a lease agreement, PPA or similar type of agreement:

• The solar panels must not be included in the appraised value of the property• The property must maintain access to electrical utilities consistent with community standards; and• The lease agreement, PPA or other similar agreement must provide that:

• The owner of the solar panels agrees to not be a loss payee (or named insured) on the homeowners insurance policy covering the property; and• In the event of foreclosure, the Seller/Servicer may:

• Terminate the lease agreement or PPA and require the owner of the equipment to remove the panels and supporting equipment• Become the bene�ciary of the Borrower's lease agreement or PPA without incurring a transfer fee; or• Enter into a new lease agreement or PPA with the owner of the equipment under terms no less favorable than the existing lease agreement or PPA

Any title insurance policy exceptions due to the existence of the lease agreement, PPA or similar type of agree-ment must be acceptable to Freddie Mac.


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Applications and Disclosures

[4000.1, II, A, 1, a, i, €, (1),(iii)]

Where the subject Property is encumbered with a Property Assessed Clean Energy (PACE) obligation, the sales contract must include a clause specifying whether the PACE obligation will remain with the Property or be satis�ed by the seller at, or prior to, closing. Where the PACE obligation will remain, all terms and conditions of the PACE obligation must be fully disclosed to the Borrower and made part of the sales contract between the seller and the Borrower.FHA

Freddie Mac


MORTGAGE CURRENTCY


General Mortgage Insurability

[4000.1, II, A, 1, b, iv, (A), (6)]

Property Assessed Clean Energy (PACE) refers to an alternative means of �nancing energy and other PACE-al-lowed improvements for residential properties using �nancing provided by private enterprises in conjunction with state and local governments. Generally, the repayment of the PACE obligation is collected in the same manner as a special assessment tax; it is collected by the local government rather than paid directly by the Borrower to the party providing the PACE �nancing. Generally, the PACE obligation is also secured in the same manner as a special assessment tax against the Property. In the event of a sale, including a foreclosure sale, of the Property with outstanding PACE �nancing, the obligation will continue with the Property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished. Properties which will remain encumbered with a PACE obligation are eligible for FHA-insured �nancing provided that the Mortgagee deter-mines that the following requirements have been met:

• under the laws of the state where the Property is located, the PACE obligation is collected and secured by the creditor in the same manner as special assessment taxes against the Property;

• the Property may only become subject to an enforceable claim (i.e., lien) that is superior to the FHA-in-sured Mortgage for delinquent regularly scheduled PACE special assessment payments. The Property shall not be subject to an enforceable claim (i.e., lien) superior to the FHA-insured Mortgage for the full outstanding PACE obligation at any time (i.e., through acceleration of the full obligation). However, a notice of the lien for the full PACE obligation may be recorded in the land records;

• there are no terms or conditions that limit the transfer of the Property to a new homeowner. Legal restric-tions on conveyance arising from a PACE obligation that could require consent of a third party before the owner can convey the Real Property are prohibited, unless such provisions may be terminated at the option of, and with no cost to, the homeowner;

• the existence of a PACE obligation on a Property is readily apparent to Mortgagees, Appraisers, Borrowers and other parties to an FHA-insured Mortgage transaction in the public records and must show the obligation amount, the expiration date and cause of the expiration of the assessment. In no case may default accelerate the expiration date; and

• in the event of a sale, including a foreclosure sale, of the Property with outstanding PACE �nancing, the obligation will continue with the Property causing the new homeowner to be responsible for the payments on the outstanding PACE amount.

FHA



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Solar and Wind Technologies

(4000.1, II, A, 8, m)

Program that �nances (through purchase or rate/term re�nance) for installation of these technologies using a 203(b) or 203(k) loan. It allows for a �nal loan amount that exceeds the home value by up to 20%.


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Appraiser and Property Requirements

(4000.1, II, D, 12, d, iv)

Property Assessed Clean Energy

(A) De�nition Property Assessed Clean Energy (PACE) refers to programs that may provide an alternative means of �nancing energy and other PACE-allowed improvements for residential Properties using �nancing provided by private enterprises in conjunction with state and local governments. Generally, the repayment of the PACE obligation is collected in the same manner as a special assessment tax is collected by the local government, rather than paid directly by the Borrower to the party providing the PACE �nancing. Generally, the PACE obligation is also secured in the same manner as a special assessment tax against the Property. In the event of a sale, including a foreclosure sale, of the Property with outstanding PACE �nancing, the obligation will continue with the Property causing the new homeowner to be responsible for the payments on the outstanding PACE amount. In cases of foreclosure, priority collection of delinquent payments for the PACE assessment may be waived or relinquished.

(B) Required Analysis and Reporting The Appraiser must review the sales contract and property tax records for the Property to determine the amount outstanding and the terms of the PACE obligation:

• if the Mortgagee noti�es the Appraiser that the subject Property will remain subject to a PACE obligation; • when the Appraiser observes that the property taxes for the subject Property are higher than average for the neighborhood and type of dwelling; or • when the Appraiser observes energy-related building components or equipment or is aware of other PACE-allowed improvements during the inspection process.

The Appraiser must report the outstanding amount of the PACE obligation for the subject Property and provide a brief explanation of the terms.

Where energy and other PACE-allowed improvements have been made to the Property through a PACE program, and the PACE obligation will remain outstanding, the Appraiser must analyze and report the impact on the value of the Property, whether positive or negative, of the PACE-related improvements and any additional obligation (i.e., the PACE special assessment).

FHA


MORTGAGE CURRENTCY


Appraiser and Property Requirements

[4000.1, II, D, 3, c, vii, (G)]

Leased Equipment, Components, and Mechanical Systems

The Appraiser must not include the value of leased mechanical systems and components in the Market Value of the subject Property. This includes furnaces, water heaters, fuel or propane storage tanks, solar or wind systems (including power purchase agreements), and other mechanical systems and components that are not owned by the property owner. The Appraiser must identify such systems in the appraisal report.


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Basic Minimum Property Requirements(Chap 12.03)

Solar systems for domestic water heating and/or space heating must:

• meet standards in HUD Handbook 4930.2, Solar Heating and Domestic Hot Water Heating Systems, and• be backed-up 100 percent with a conventional thermal energy subsystem or other backup system which will provide the same degree of reliability and performance as a conventional system.

Note: VA �eld stations may determine that climatic conditions are such that mechanical heating is not required.

Energy Ef�cient Mortgages(Chap 7, 3)

Allows the additional of up to $6,000 to the loan amount for energy ef�ciency improvements.

Loan Purpose3555, 6.2, C

Energy Ef�ciency Measures. Loan funds can be used for purchase and installation of measures to promote energy ef�ciency, such as insulation, doublepaned glass, and solar panels.

VA

USDA

FHA

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