The Natural Resources Defense Council sued the federal government today in an effort to restore funding for "cash for caulkers" programs that offer low-interest financing to homeowners undertaking energy retrofits and other improvements.

Funded by $150 million in federal stimulus dollars, local Property Assessed Clean Energy (PACE) programs have helped property owners save money by making their homes more energy efficient. They have  also created scores of green jobs for contractors and construction companies. Babylon, New York's successful PACE program was profiled in OnEarth's Spring 2010 issue.

But PACE was delivered a near-death blow this summer when two federal regulatory agencies instructed mortgage lenders not to finance homes in municipalities with PACE programs.

NRDC filed suit (full complaint, PDF) in federal court in New York City against the Federal Housing Finance Administration, which regulates government-backed mortgage giants Fannie Mae and Freddie Mac, as well as the Office of the Comptroller of the Currency, which regulates national banks.

In the suit, NRDC alleges that FHFA has offered no factual support of its position that PACE funding, typically applied to properties in the form of tax assessments, creates significant risks to collecting on mortgages if a homeowner defaults.

California Attorney General Jerry Brown, along with Sonoma County, the City of Palm Desert, and the Sierra Club, have also sued to get PACE funding restored, according to NRDC. Legislation has also been introduced in both the House and Senate to revive the programs.

On NRDC's Switchboard blog, energy counsel Kit Kennedy says that both agencies took "a backdoor administrative action" in warning lenders to stay away from cities and towns with PACE programs.

This action created "a freeze on nearly all existing and planned PACE programs, leaving millions of dollars in federal stimulus funds in question, and thousands of jobs implementing the projects in limbo," writes Kennedy, "in addition to putting climate change goals and economic development plans across the country on hold."

FHFA has so far declined to comment on the lawsuit.

Follow the PACE story with OnEarth's continuing coverage.