A federal judge has shined some light on California’s alternative energy financing program. On Friday, U.S. District Judge Claudia Wilken declared the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp. (Freddie Mac) improperly interfered with the state’s unique financing method to encourage solar and other alternative energy-saving home retrofits.
An appeal to the 9th U.S. Circuit Court of Appeals is already in the works.
California’s program, known as PACE, or Property Assessed Clean Energy, allows homeowners to borrow money at a low interest rate to make energy upgrades. The state pays up front and the property owners repay the loans over 15 to 20 years through an assessment on their property tax bill.
The PACE loan stays with the land, meaning even if the property is sold, the new owner must continue to pay off the obligation. It is an economical way to promote energy efficiency without owners paying large up-front costs.
The controversy arises because the PACE lien, like other tax liens, gets paid before the mortgage on the property if owners default.
Fannie Mae and Freddie Mac in 2010 issued letters to mortgage lenders refusing to allow the PACE liens to take priority over a mortgage and thus would increase an homeowners debt burden.
It called for a pause in the programs to address the concerns, basically strangling the energy conservation program.
Four separate lawsuits by the state of California, Sonoma and Placer Counties, the Sierra Club and the city of Palm Desert were filed in 2010 challenging the move.
Fannie and Freddie refused to buy mortgages secured by PACE liens.
On Friday, Wilken sided with the plaintiffs saying the actions by Freddie and Fannie amounted to unfair business business practices under California law, interfered with economic advantage and contract relations.
She also held the Federal Housing Finance Agency actions violated the Constitution’s Tenth Amendment and in Placer County violated the Commerce Clause.
She ordered the FHFA to complete its notice and comment period for rules concerning PACE and publish it in no less than 210 days.
A notice of appeal has already been posted on the court’s docket.
Case: Peo. of California v. Federal Housing Finance Agency, No. 10-cv-3084CW