Freddie Mac requires that mortgages sold to us are in a first lien position on the property and remain so for the life of the loan.

A property subject to a lien that has, or may take a priority position is not eligible for sale to Freddie Mac. This includes Property Assessed Clean Energy (PACE) obligations that may result in a first lien priority at delinquency.

A PACE obligation refers to any energy retrofit loan that is:

  • 183. 83; Used to finance energy conservation improvements, and
  • 184. 83; Repaid through a property tax assessment.

Homeowners may have obtained a PACE loan to finance home energy improvement without being aware that the PACE loan was not allowed because their mortgage was sold to Freddie Mac.

If you have borrowers that took out a PACE obligation after the mortgage was sold to us, we offer opportunities, referenced in our Single-Family Seller Servicer Guide (Guide), to help them to pay off the PACE obligation and ensure their mortgage complies with Freddie Mac requirements.

No Cash-out Refinance

A borrower may pay off a PACE obligation with proceeds from a no-cash out refinance transaction, provided the following requirements are met:

  • The new refinance mortgage must be originated according to the requirements of a no cash-out refinance transaction outlined in Guide Section 4301.4.
  • The mortgage being refinanced must be owned in whole or in part or securitized by Freddie Mac.
  • The PACE obligation must be paid in full.
  • The mortgage file must include evidence that the PACE obligation being paid off would result in or provides for first lien priority.
  • Special delivery instructions for such a no-cash out transaction found in Guide Section 6302.16(b)(ii).

Cash-out Refinance

If the proceeds of a cash-out refinance transaction are used to pay off a PACE obligation, the following requirements apply:

  • The new refinance mortgage must be originated according to the requirements of a cash out refinance found in Guide Section 4301.5.
  • The PACE obligation must be paid in full.

It is important to note that Freddie Mac will purchase mortgages secured by properties with a PACE or PACE-like obligation, provided the PACE obligation is, and will remain, in a truly subordinate lien position.

Some energy retrofit programs provide for a lien that is subordinate to the mortgage. We encourage you to consult with your legal counsel to determine which states have energy retrofit programs that do not require first lien priority.

Whether you're originating a mortgage for a purchase or refinance transaction, it is critical to have processes in place to identify property issues, such as a lien that provides for, or may result in, priority position.