The Federal Housing Finance Agency (FHFA) has released a statement warning organizations that label mortgage loans with "super-priority lien" status that such loans will not push mortgages backed by Fannie Mae and Freddie Mac into the secondary position.
The warning was aimed mainly at energy retrofit financing programs and homeowners associations that attach super-priority lien status to mortgages because of the risk they pose to taxpayers while Fannie Mae and Freddie Mac are under conservatorship.
"One of the bedrock principles in this process is that the mortgages supported by Fannie Mae and Freddie Mac must remain in first-lien position, meaning that they have first priority in receiving the proceeds from selling a house in foreclosure," the statement reads. "As a result, any lien from a loan added after origination should not be able to jump in line ahead of a Fannie Mae or Freddie Mac mortgage to collect the proceeds of the sale of a foreclosed property."
Energy efficiency programs such as the Property Assessed Clean Energy (PACE) program, offered in California and other states, provide loans made through the homeowners' property tax assessment and repaid as part of the property tax bill, and gives those loans first-lien status. FHFA states that the GSEs' policies prohibit them from purchasing a mortgage with a first-lien PACE loan attached for two reasons.
"First, a homeowner with a first-lien PACE loan cannot refinance their existing mortgage with a Fannie Mae or Freddie Mac mortgage," the statement reads. "Second, anyone wanting to buy a home that already has a first-lien PACE loan cannot use a Fannie Mae or Freddie Mac loan for the purchase. These restrictions may reduce the marketability of the house or require the homeowner to pay off the PACE loan before selling the house."
FHFA said it will aggressively enforce the existing policies prohibiting the purchase of mortgages that include PACE loans and will continue to pursue legal and other actions that will protect the first-lien status of GSE loans.
Where homeowners associations are concerned, FHFA announced that the Agency and Fannie Mae filed an action in a Nevada federal court on December 5 seeking to declare sales made by HOAs invalid. The Nevada Supreme Court made a controversial ruling in September that gave HOAs the power to foreclose on a home and extinguish a mortgage non-judicially, a ruling that was subsequently appealed by lenders. In order to protect Fannie Mae's and Freddie Mac's property rights, FHFA intervened in two Nevada cases in which an HOA extinguished a mortgage.
"These FHFA actions are based on federal law which precludes involuntary extinguishment of liens held by Fannie Mae or Freddie Mac while they are operating in conservatorships and bars holders of other liens, including HOAs, from taking any action that would extinguish a Fannie Mae or Freddie Mac lien, security interest or other property interest," the statement reads. ". . . FHFA is authorized, as conservator, to bring this suit because Enterprise lien interests in collateral constitute property protected by this provision."
FHFA said it would aggressively protect the rights of the GSEs by bringing actions to prevent foreclosures or threaten the first-lien status of Fannie Mae- or Freddie Mac-guaranteed mortgages.