Fannie Mae Selling Guide B5-3.4-01 — Property Assessed Clean Energy Loans

Fannie Mae Selling Guide B5-3.4-01 — Property Assessed Clean Energy Loans

B5-3.4-01, Property Assessed Clean Energy Loans (10/08/2025) Introduction This topic contains information on Property Assessed Clean Energy (PACE) loans, including: Overview Eligibility Refinancing Options for Properties with a PACE Loan Delivery Requirements Overview Certain energy retrofit lending programs, often referred to as Property Assessed Clean Energy (PACE) programs, are made by localities to finance residential energy-related improvements and are generally repaid through the homeowner’s real estate tax bill. These loans typically have automatic first lien priority over previously recorded mortgages. The terms of the Fannie Mae/Freddie Mac Uniform Security Instruments prohibit loans that have senior lien status to a mortgage. Eligibility 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 first 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 first mortgage loan may be underwritten 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. Note: On the Form 1003 (1/2021) the borrower must indicate if the property will be subject to a PACE lien that will take priority over the first mortgage lien in Section 5a E. The lender must indicate if the property is currently subject to a a PACE lien that will take priority over the first mortgage lien in Section L1. Published May 6, 2026 750 Refinancing 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 refinance and who obtained a PACE loan prior to July 6, 2010: Paying off the PACE loan: The lender must first attempt to qualify the borrower for either a cash-out or limited cash-out refinance option, with the PACE loan being paid off as part of the refinance. To mitigate the risk posed by PACE obligations that take lien priority over the mortgage, Fannie Mae requires that borrowers with sufficient 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 refinance to pay off a loan not used to purchase the property will not apply. Loan casefiles underwritten in DU as a limited cash-out refinance may receive an Ineligible recommendation when it appears the borrower is receiving more than 1%/$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 requirements of this Guide, including (but not limited to) A2-2-04, Limited Waiver and Enforcement Relief of Representations and Warranties Retaining the PACE loan: If the borrower is unable to qualify for a cash-out or limited cash-out refinance with sufficient proceeds to pay off the PACE loan, the lender may underwrite the loan as a limited cash-out refinance, 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. Delivery Requirements For those eligible limited cash-out refinances where the PACE loan remains in place, the loans must be delivered with SFC 173. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SEL-2025-08 October 08, 2025 Announcement SEL-2020-07 December 16, 2020 Announcement SEL-2019-07 August 07, 2019 Published May 6, 2026 751 Chapter B5-4, Property-Specific Products Introduction This chapter describes the policies and requirements for property-specific products. Section B5-4.1, General Requirements of Texas Section 50(a)(6) Loans B5-4.1-01, Texas Section 50(a)(6) Loans (12/19/2017) Introduction This topic contains information on Texas Section 50(a)(6) loans, including: Overview Lender Eligibility Loan Origination and Compliance Lender Certification Lender’s and Servicer’s Obligations to Maintain Procedures for Curing Violations Overview A Texas Section 50(a)(6) loan is a loan originated in accordance with and secured by a lien permitted under the provisions of Article XVI, Section 50(a)(6), of the Texas Constitution, which allow a borrower to take equity out of a homestead property under certain conditions. Lender Eligibility Unless otherwise notified in writing, all lenders are eligible to sell and/or service Texas Section 50(a)(6) loans as long as the lender meets the eligibility criteria specified in Texas Constitution Section 50(a)(6). A lender that intends to sell Texas Section 50(a)(6) loans originated by a third-party originator is also responsible for ensuring that the originating lender qualifies as an “authorized lender” under Texas Constitution Section 50(a)(6). Loan Origination and Compliance In addition to Fannie Mae's other origination and compliance requirements for Texas Section 50(a)(6) loans in Published May 6, 2026 752 this chapter, lender agrees to the following: ✓ Requirement The borrower’s first payment must be due no later than two months after closing. For purposes of the compliance with the acknowledgment of the "fair market value" of the homestead property requirement, the "fair market value" must be based on an appraisal and the appraisal must be attached to the written acknowledgment. See B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations for Fannie Mae's appraisal requirements. The proceeds from a Texas Section 50(a)(6) loan must not be used to acquire or improve the homestead if a loan for that purpose could have been made under a different provision of the Texas Constitution. Fannie Mae has no other restrictions on the use of the loan proceeds. If the new loan is a Texas Section 50(a)(6) loan refinance transaction originated to cure a failure in the original loan to comply with Texas Constitution Section 50(a)(6), then the new loan is eligible for sale to Fannie Mae provided that it complies in all respects with Fannie Mae’s requirements. However, unless a refinance transaction has been completed to cure a failure in the original loan transaction to comply with Texas Constitution Section 50(a)(6), a Texas Section 50(a)(6) loan is ineligible for sale to Fannie Mae if the lender has either identified or been notified by the borrower of a failure to comply, whether or not there has already been a cure or an attempt to cure the failure to comply. DU does not contain the specific eligibility rules needed to determine eligibility of Texas Section 50(a)(6) loans under Texas Constitution Section 50(a)(6) or the Selling Guide. Lenders must determine whether refinance loans secured by properties in Texas are eligible for sale to Fannie Mae, and should be aware that even though a loan may receive an “Eligible” recommendation, the loan may not comply with Texas Constitution Section 50(a)(6) or be eligible for delivery according to Texas Constitution Section 50(a)(6) or the Selling Guide. Lender Certification By sale of a Texas Section 50(a)(6) loan to Fannie Mae, the lender represents, warrants, and certifies that with respect to all of the Texas Section 50(a)(6) loans delivered to Fannie Mae, whether or not originated by the lender: All Texas Section 50(a)(6) loans were originated pursuant to written processes and procedures that comply with the provisions of the Texas Constitution applicable to mortgage loans. The lender has in place a specific process for the receipt, handling, and monitoring of notices from Published May 6, 2026 753 borrowers that lender (or the mortgage originator, if lender is the servicer but not the originator) failed to comply with the provisions of the law applicable to Texas Section 50(a)(6) loans. Such process must be adequate to ensure that the lender will correct the failure to comply by one of the authorized means no later than the 60th day after the date the lender is notified of the failure to comply by the borrower. An attorney familiar with the provisions of Texas Constitution Section 50(a)(6) was consulted in connection with the development and implementation of the processes and procedures used for the origination of the Texas Section 50(a)(6) loans. To ensure ongoing compliance with the law applicable to loans authorized by Texas Constitution Section 50(a)(6), the processes and procedures used for the origination of the Texas Section 50(a)(6) loans will be reviewed by the lender regularly and will be updated and revised, as appropriate pursuant to clarifications of the law, on a regular and continual basis. Lender’s and Servicer’s Obligations to Maintain Procedures for Curing Violations Lenders and servicers must have specific processes in place to cure any failure to comply with Texas Constitution Section 50(a)(6) identified with respect to a loan sold to or serviced on behalf of Fannie Mae by one of the authorized means, as required by the “Lender Certification” requirements described above. A lender’s or servicer’s failure to cure within 60 days after being notified of a failure to comply may, under Texas law, result in the forfeiture of all principal and interest due under the Texas Section 50(a)(6) loan. However, any action taken, or not taken, in connection with a failure to comply with Texas Constitution Section 50(a)(6), even if such action is a result of the lender’s or servicer’s effort to cure a failure to comply, that results in any of the following constitutes a breach of the lender’s selling representations and warranties and/or servicing obligations and requirements: a forfeiture of any principal or interest due under the mortgage loan; invalidation of the mortgage as a first lien; abatement of accrual of interest and the borrower’s obligations under the mortgage loan; reduction in the principal amount of the mortgage loan; or any modification of the amount, interest rate, term, or other provision of the mortgage loan. Such action, taken or not taken, shall be deemed a failure to correct a significant defect and/or a servicing defect that permits Fannie Mae to exercise any of the remedies provided in the Lender Contract, including the right to require repurchase of the loan. If the lender or servicer receives notice from a borrower that a lender (or the mortgage originator, if the lender or the servicer is not the originator) failed to comply with Texas Constitution Section 50(a)(6), the lender or servicer must immediately, but no later than seven business days after receipt, take the following actions: inform Fannie Mae’s Legal department by submitting a Non-Routine Litigation (Form 20) and include the borrower notice in its submission; and, collaborate with Fannie Mae on the appropriate response, including any cure that may be necessary, within the 60-day-time frame provided by the requirements of Texas Constitution Section 50(a)(6). Recent Related Announcements There are no recently issued Announcements related to this topic. Published May 6, 2026 754 B5-4.1-02, Texas Section 50(a)(6) Loan Eligibility (12/16/2020) Introduction This topic contains information on Texas Section 50(a)(6) loan eligibility, including: Refinance Classifications Eligible Loan Products and Transaction Types Texas Section 50(a)(6) Loan Security Property Refinance Classifications Lenders should be aware that Fannie Mae’s classification of loan transactions as “cash-out refinance” or “limited cash-out refinance” may differ from the way loans are classified under Texas law. Lenders should not rely on Fannie Mae’s categorization of refinance loans for purposes of determining whether compliance with the provisions of Texas Constitution Section 50(a)(6) is required. Rather, such lenders should consult with their counsel to determine the applicability of Texas Constitution Section 50(a)(6) to a particular loan transaction. Texas law determines whether or not a loan is a Texas Section 50(a)(6) loan, and Fannie Mae’s policy determines whether the loan must be delivered as a cash-out refinance transaction or as a limited cash-out refinance transaction. The lender is responsible for determining: the applicability of Texas Constitution Section 50(a)(6) regardless of Fannie Mae’s definitions of cash-out and limited cash-out refinance transactions; and if the loan should be delivered to Fannie Mae as a cash-out refinance or a limited cash-out refinance transaction, including the applicable special feature codes and payment of all applicable LLPAs. All loans that constitute Texas Section 50(a)(6) loans under Texas law must comply with these provisions, regardless of whether the loan is classified as a “cash-out refinance” or “limited cash-out refinance” in the Selling Guide. See B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations For any refinance of a Texas Section 50(a)(6) loan that results in a loan originated in accordance with and secured by a lien permitted by Article XVI, Section 50(a)(4) of the Texas Constitution, an affidavit referenced in Section 50(f-1) Article XVI of the Texas Constitution must be prepared and recorded in connection with each such transaction. Eligible Loan Products and Transaction Types Texas Section 50(a)(6) loans must be fully amortizing loans with payments due on a monthly basis. The following are eligible as Texas Section 50(a)(6) loans: Published May 6, 2026 755 first lien mortgages only; fixed-rate loans; and five-, seven-, and ten-year ARM plans (4927, 4928, and 4929 Texas 50(a)(6), respectively). Note: These ARM plans should be structured in the same way that they are for other loans, except that the loan may not be assumable at any time over its full term. Only the ARM plans listed above are eligible, due to the MBS disclosure impact resulting from the non-assumable nature of these ARMs. The following are not eligible as Texas Section 50(a)(6) loans: loans that are not in first-lien position, ARM plans not listed above, and loans with temporary interest rate buydowns. Texas Section 50(a)(6) Loan Security Property A Texas Section 50(a)(6) loan must be secured by a single-unit principal residence constituting the borrower’s homestead under Texas law. Loans secured by two- to four-unit properties, investment properties, or second homes are not eligible. The security property may be a detached dwelling, an attached dwelling, a unit in a PUD project, a unit in a condo project, or a manufactured home. (A manufactured home is eligible only if it is classified as real property under Texas law, and satisfies all special Fannie Mae eligibility criteria for manufactured homes.) The borrower’s homestead property may not exceed the applicable acreage limit as determined by Texas law when the Texas Section 50(a)(6) loan is originated. A borrower that owns adjacent land must submit appropriate evidence, such as a survey, that the mortgaged homestead property is a separate parcel that does not exceed the permissible acreage. Note: An inter vivos revocable trust that meets Fannie Mae's borrower eligibility criteria (as described in B2-2-05, Inter Vivos Revocable Trusts), may be a borrower under a Texas Section 50(a)(6) loan, provided that the trust meets the requirements for a "qualifying trust" under Texas law for purposes of owning residential property that qualifies for the homestead exemption. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Published May 6, 2026 756 Announcements Issue Date Announcement SEL-2020-07 December 16, 2020 Announcement SEL-2020-02 April 01, 2020 B5-4.1-03, Texas Section 50(a)(6) Loan Underwriting, Collateral, and Closing Considerations (03/04/2026) Introduction This topic contains information on Texas Section 50(a)(6) loan underwriting, collateral, and closing considerations, including: LTV/CLTV Ratios Underwriting Property Valuation and Survey Loan Documentation Title Insurance LTV/CLTV Ratios Per Texas law, the maximum allowable LTV and combined LTV for any Texas Section 50(a)(6) loan is 80%, notwithstanding any conflicting provisions of this Guide or any specific DU recommendation or finding. HELOC subordinate financing is not permitted, hence a maximum HCLTV ratio is not applicable. Underwriting Texas Section 50(a)(6) loans are eligible for the reduced documentation requirements recommended by DU, provided that all other terms and conditions described herein for Texas Section 50(a)(6) loans shall apply. For a Texas Section 50(a)(6) loan that represents the refinance of a prior Texas Section 50(a)(6) loan, the borrower must requalify even if the lender is currently servicing the existing loan that is being refinanced. Manually underwritten Texas Section 50(a)(6) loans are subject to minimum credit score requirements per the Selling Guide, based on the transaction as either a cash-out refinance or a limited cash-out refinance, as applicable. Published May 6, 2026 757 Property Valuation and Survey Lenders must obtain a new appraisal to determine the property's current value even if DU offers value acceptance, or a value acceptance + property data option. If the appraisal is deemed deficient, refer to Guidance on Addressing Appraisal Deficiencies in B4-1.3-12, Appraisal Quality Matters. The appraisal (together with any applicable desk review or field review) must be attached to the written acknowledgment of "fair market value". Note: When a desk review or field review is requested by the lender in connection with a Texas Section 50(a)(6) loan, it must be obtained prior to the date of the note and mortgage. The appraisal for the property and the acknowledgment of fair market value must not include any property other than the homestead. The survey (or other acceptable evidence) must demonstrate that: the homestead property and any adjacent land are separate parcels, and the homestead property is a separately platted and subdivided lot for which full ingress and egress is available. The lender selling the loan to Fannie Mae must not have any interest (such as an option to purchase, a security interest, or an easement) in any parcel adjacent to the homestead property that is owned by the borrower, if such interest could constitute additional security for the Texas Section 50(a)(6) loan. Loan Documentation There is a special security instrument, notes, and riders that must be used in connection with Texas Section 50(a)(6) loans and a special affidavit that must be prepared and recorded in connection with each Texas Section 50(a)(6) loan transaction. Lenders must use the following documents: Texas Home Equity Security Instrument (First Lien) (Form 3044.1) the specific Texas Section 50(a)(6) loan notes and riders, and Texas Home Equity Affidavit and Agreement (First Lien) (Form 3185) Because of the complexities involved in closing Texas Section 50(a)(6) loans, lenders must provide the title company with a detailed closing instruction letter and require an acknowledgment of its receipt. The closing instructions must require the title company to conduct its closings properly to ensure compliance with Texas Constitution Section 50(a)(6). To assist in this endeavor, the Texas Home Equity Affidavit and Agreement First Lien (Form 3185) must be prepared and recorded in connection with each Texas Section 50(a)(6) loan transaction. Fannie Mae suggests that a lender also require each borrower to sign a closing receipt that itemizes the documents that they received at closing. For additional Texas Section 50(a)(6) loan documentation (also called “Texas Home Equity” documentation) refer to Standard Texas Home Equity Notes (under Standard Instruments). Note: Texas Section 50(a)(6) loans are not eligible for delivery as eMortgages. Published May 6, 2026 758 Title Insurance For all Texas Section 50(a)(6) loans, a title insurance policy written on Texas Land Title Association forms (standard or short form), supplemented by an Equity Loan Mortgage Endorsement (Form T-42) and a Supplemental Coverage Equity Loan Mortgage Endorsement (Form T-42.1), is required. Note: There may be no exceptions or deletions to the coverage provided by Paragraphs 2(a) through (e) (other than an exception or deletion relating to the exclusion of agricultural homestead property) of the T-42 endorsement. The endorsement must include the optional coverage provided by Paragraph 2(f), as well as the additional coverage provided by Endorsement T-42.1. The title insurance policy cannot include language that: excludes coverage for a title defect that arises because financed origination expenses are held not to be “reasonable costs necessary to refinance”, or defines the “reasonable costs necessary to refinance” requirement as a “consumer credit protection” law since the standard title policy excludes coverage when lien validity is questioned due to a failure to comply with consumer credit protection laws. Recent Related Announcements The table below provides references to recently issued Announcements that are related to this topic. Announcements Issue Date Announcement SEL-2026-02 March 04, 2026 Announcement SEL-2025-07 September 03, 2025 Announcement SEL-2023-02 March 01, 2023 Announcement SEL-2019-07 August 07, 2019 Announcement SEL-2019-04 May 01, 2019 B5-4.1-04, Texas Section 50(a)(6) Loan Delivery and Servicing Published May 6, 2026 759 Considerations (12/19/2017) Introduction This topic contains information on Texas Section 50(a)(6) loan delivery considerations, including: Special Feature Codes and Pricing Servicing Special Feature Codes and Pricing All Texas Section 50(a)(6) loans must be identified at delivery with SFC 304. In addition, the lender must enter the following special feature codes at loan delivery: SFC 003 for each Texas Section 50(a)(6) loan that is classified as a cash-out refinance under Fannie Mae’s policy, and SFC 007 for each Texas Section 50(a)(6) loan that is classified as a limited cash-out refinance under Fannie Mae’s policy. If the lender determines that a loan secured by a mortgage on a homestead property in Texas is classified as a cash-out refinance per this Guide but is not a Texas Section 50(a)(6) loan, then the loan should be delivered as a standard (non-Texas Section 50(a)(6) loan) cash-out refinance transaction and should not be identified with SFC 304. At delivery, all Texas Section 50(a)(6) loans that are classified as cash-out refinance transactions are subject to the loan-level price adjustments applicable to cash-out refinance loans per the Lender Contract. Servicing A lender that delivers a Texas Section 50(a)(6) loan to Fannie Mae may either service the loan, enter into a subservicing arrangement with another lender, or assign the servicing concurrent with its delivery to Fannie Mae. Except as otherwise noted in the Selling Guide or Servicing Guide, standard Fannie Mae servicing requirements apply to Texas Section 50(a)(6) loans. Recent Related Announcements There are no recently issued Announcements related to this topic. Section B5-4.2, Other Property-Specific Products Published May 6, 2026 760 B5-4.2-01, Native American Conventional Lending Initiative (NACLI) (06/26/2012) Introduction This topic contains information on Native American Conventional Lending Initiative (NACLI), including: Overview Lender Eligibility Eligibility Requirements Special Feature Codes Overview As part of Fannie Mae’s commitment to offering conventional loan products to address special housing needs of the underserved, Fannie Mae developed its set of Native American conventional Housing Initiatives. Through these initiatives, Fannie Mae purchases conventional mortgages that are made to Native Americans. Lender Eligibility Any lender that is interested in participating in NACLI must obtain separate approval from Fannie Mae. Upon approval, the lender will obtain the applicable set of terms and conditions that may vary for the specific tribal community. Eligibility Requirements Tribes that have jurisdiction over lands restricted to tribal members are eligible. Before any lending may take place, a tribe’s ordinances must be reviewed to ensure that there is appropriate support for mortgage lending. This includes Fannie Mae’s confirmation that the tribe has appropriate ordinances involving such issues as the recording of mortgages, resale, lien priority, foreclosure, and eviction. Special Feature Codes A lender must report SFC 221 for a mortgage originated under NACLI when it delivers a mortgage originated under Fannie Mae’s Native American Housing Initiatives. In addition, the lender should report all other applicable special feature codes that are needed to describe other special mortgage characteristics. Recent Related Announcements Published May 6, 2026 761 There are no recently issued Announcements related to this topic.

Source: Fannie Mae Selling Guide B5-3.4-01 — Property Assessed Clean Energy Loans · source URL · snapshot 5f7b8b79da595d76