The Federal Housing Administration will stop insuring new mortgages on homes with PACE loans, a type of financing used to fund energy-efficient home improvements.
The announcement Thursday followed criticism from consumer groups that too many borrowers have taken out unaffordable loans for solar panels and other projects after contractors misrepresented how the financing works.
In announcing the policy change, the FHA said PACE loans lack sufficient consumer protection. When a borrower with an FHA-backed mortgage is foreclosed upon, the portion of the PACE loan in arrears must be paid off first.
The remaining PACE loan transfers to the new buyer, but the FHA said that increases the likelihood the buyer will pay less, making it more difficult for the agency to meet its obligations.
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