MBA sees risk in new Florida law that gives first-lien priority to PACE loans

The Mortgage Bankers Association (MBA) this week detailed its reasons for opposing a bill in the state of Florida designed “to expand projects eligible for residential Property Assessed Clean Energy (PACE) financing,” which was recently signed into law by Gov. Ron DeSantis. 

Florida Senate Bill SB-770 authorizes local and county authorities within the state to create financing programs for home and other property renovations, which can include energy efficiency upgrades or renewable energy installations funded through non-value based assessments of a property.

But the bill as signed gives first-lien priority to PACE liens over existing mortgages that may exist on the property, which MBA says would introduce new risks for lenders and consumers, and preclude borrowers from engaging in refinances with Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) programs, or from a loan sold to the government-sponsored enterprises (GSEs).

“The now-enacted law will significantly expand the number and types of projects eligible for financing by Florida’s PACE loan program without first subordinating residential PACE liens to existing mortgages or providing substantive consumer protections,” MBA said.

There is also a consumer protection argument to be made, MBA explained.

“MBA has long opposed residential PACE programs because they create risk to lenders and consumers due to the priority status the PACE lien is granted ahead of previously recorded first-mortgages,” the association said. “They also expose consumers to further risk because they are not yet covered by MBA-supported federal consumer protection regulations currently being written by the Consumer Financial Protection Bureau (CFPB).”

Following passage in the Florida state legislature and submission to Gov. DeSantis’ office, MBA sent out a call-to-action from its advocacy network to Florida MBA members, “and coordinated with the MBA of Florida to provide a second wave of industry opposition and concern,” the association said.

Proponents of the bill said it would act as a bulwark against ballooning property tax rates, according to reporting at Florida Politics. The Florida PACE Funding Association (FPFA) also praised the signing of the bill.

“The Florida Legislature and Gov. DeSantis reaffirmed their commitment to the Florida PACE program passing new legislation expanding the program with bipartisan support in the Senate with a 34-2 vote,” FPFA said in a statement.

“The Florida PACE program will continue to help Florida families and businesses hurricane-harden their property with the Florida Legislature expanding the program to now include financing septic-to-sewer connections.”

But MBA contends that “buyers of homes with PACE liens cannot obtain federally backed financing unless the PACE lien is first paid off in its entirety,” encumbering the process of home purchases and financing in Florida for properties engaged in the PACE program.

“MBA will continue to support the MBAF in its efforts to resolve PACE lien priority issues to protect consumers and sustain financing options within Florida,” MBA said of its next steps on the matter.